U.S. Stocks Fall on Concern Fed Is Running Out of Ammunition

By Elizabeth Stanton and Whitney Kisling

Dec. 17 (Bloomberg) -- U.S. stocks fell and the Standard & Poor’s 500 Index retreated from a five-week high on concern the Federal Reserve has few tools left to combat the recession after cutting its benchmark interest rate to a record low.

Newell Rubbermaid Inc., the maker of Calphalon cookware, tumbled the most in at least 28 years as the shrinking economy forced it to reduce its 2008 profit forecast. Apple Inc. slid 6.6 percent after the maker of the iPhone said Chief Executive Officer Steve Jobs won’t speak at the Macworld Expo, spurring concern the leader’s health is deteriorating. Macy’s Inc. rallied 18 percent, helping trim the market’s losses, after lenders relaxed terms on a $2 billion credit line.

“The economic environment isn’t going to change a lot,” said Warren Koontz, who oversees $2.5 billion as chief investment officer for large-company value stocks at Loomis Sayles & Co. in Boston. Loomis manages $105 billion. “We do have to pay penance for the over-living of the past decade.”

The S&P 500 lost 1 percent to 904.42. Technology and energy shares were the biggest drag on the index as Apple tumbled and oil slid below $40 a barrel for the first time in four years. The Dow Jones Industrial Average declined 99.8 points, or 1.1 percent, to 8,824.34. The Russell 2000 Index of small U.S. companies added 0.8 percent.

Today’s decline erased about one-fifth of yesterday’s 5.1 percent rally in the S&P 500, which was sparked by the Fed’s reduction of its benchmark rate to a range of 0 to 0.25 percent and its plan to use “all available tools” to revive the economy. The dollar tumbled the most against the euro since the 15-nation currency’s 1999 debut and sank to a 13-year low versus the yen after the rate cut.

‘Significant Deterioration’

Europe’s Dow Jones Stoxx 600 Index slid 0.8 percent, as BNP Paribas SA tumbled 17 percent after saying losses at its securities unit since October more than wiped out the division’s profit for the first three quarters of the year.

Newell Rubbermaid Inc. fell 27 percent to $9.58. The company, which also makes Graco baby products, lowered its full- year profit forecast because of the “significant deterioration of global economic conditions” and said it is cutting 8 percent to 10 percent of its salaried workforce.

Apple lost $6.27 to $89.16. Oppenheimer & Co. analyst Yair Reiner downgraded Apple to “perform” from “outperform,” saying it’s “past time” for Apple to disclose the state of Jobs’ health or outline a plan for a successor. Apple also said that the company will no longer participate in the MacWorld show after next month’s event.

Technology companies in the S&P 500 lost 1.7 percent as a group.

Macy’s Credit Line

Macy’s, the second-largest U.S. department store company, jumped 18 percent to $10.01. The amended credit agreement helps remove doubts about the company’s ability to pay off $950 million in debt maturing next year. The size on the $2 billion facility, led by Bank of America Corp. and JPMorgan Chase & Co., and the maturity date of Aug. 31, 2012, are unchanged, Macy’s said in a statement. The facility remains untapped, it said.

The S&P 500 Retailing Index advanced 1.2 percent as 24 of its 27 companies rose.

“We have kind of a push and pull between an economy that’s in recession, and probably getting worse right now, and a credit market that’s actually starting to heal or at least show signs of healing,” said Richard Campagna, chief investment officer of 300 North Capital LLC in Pasadena, California, which manages $1 billion.

Utilities Tumble

NiSource Inc., owner of Indiana’s largest natural-gas utility, declined 4.7 percent to $11.38 after Standard & Poor’s Ratings Services cut its outlook to “negative” from “stable,” citing a “strained liquidity position in 2009.”

Constellation Energy Group Inc. declined 20 percent to $23, its steepest loss since September, after agreeing to sell half its nuclear-power business to Electricite de France SA for $4.5 billion, abandoning an earlier deal to sell itself to Warren Buffett’s MidAmerican Energy Holdings Co. Moody’s Investors Service also cut Constellation’s senior unsecured debt to Baa3, the lowest investment grade, and said Constellation will be a stand-alone company that has sold a stake in its “crown jewel assets.”

A group of utility companies slid 2.9 percent, the most of the 10 main S&P 500 industry groups.

Morgan Stanley added 2.3 percent to $16.50, joining rival Goldman Sachs Group Inc. in advancing even after posting a wider-than-estimated fourth-quarter loss.

‘Healing Process’

Morgan Stanley’s loss of $2.24 a share compared with a deficit of $3.61 a share in the same period a year earlier. The average estimate of 16 analysts surveyed by Bloomberg was for a 34-cent loss, with no estimates exceeding $1.15. Morgan Stanley unexpectedly wrote down the value of its fixed-income businesses and lost money all three of its main divisions.

Goldman Sachs gained 3.7 percent to $78.78. The shares rallied 14 percent yesterday after the company posted a quarterly loss, its first since going public in 1999, that was wider than the average estimate in a Bloomberg survey, while narrower than some analysts had estimated.

“The healing process is going to be a long one, no doubt about that, but it appears that they’ve taken corrective action maybe faster than we might have thought even just a month ago,” Jeffrey Kleintop, chief market strategist at LPL Financial in Boston, told Bloomberg Television. LPL Financial oversees $233 billion. “That’s an encouraging sign they’ve now shored up their balance sheets and can begin to consider lending out some of this money that the Fed and the Treasury are aggressively pumping into them.”

Changing Wall Street

The Wall Street that Morgan Stanley and Goldman Sachs dominated for decades vanished in September, when Lehman Brothers Holdings Inc. went bankrupt and Merrill Lynch & Co. sold itself to Bank of America Corp. Goldman Sachs and Morgan Stanley took $10 billion each from the U.S. government as part of the Treasury’s plan to shore up the financial system.

This week’s markdowns at Morgan Stanley and Goldman Sachs pushed global losses and writedowns from the credit crisis to more than $1 trillion, according to data compiled by Bloomberg.

Financial companies in the S&P 500, which led the market higher yesterday with an 11 percent gain, fell 1.3 percent as a group today.

Fifth Third Bancorp, Ohio’s second-largest bank, declined after cutting its fourth-quarter dividend to 1 cent from 15 cents to preserve capital. The shares lost 6 percent to $7.51 and have tumbled 70 percent this year.

Leggett & Platt Inc., the maker of lumbar supports for car seats, fell after cutting its fourth-quarter forecast because of “extremely low” demand. The shares slid 6 percent to $14.59.

GE Downgrade

General Electric Co., the 106-year-old economic bellwether, fell 3 percent to $17.39. The world’s biggest maker of power- plant turbines, was lowered to “sell” from “hold” by Sterne Agee & Leach Inc., which said GE may cut as much as 9 percent of the workforce to reduce costs.

Energy shares retreated after a government report showed an increase in oil inventories, sending crude down 8.1 percent to $40.06 a barrel as OPEC failed to convince traders that the glut in supply will diminish and the U.S. government said supplies climbed for the 11th time in 12 weeks. Oil slid to as low as $39.88 during the session.

Chevron Corp., the second biggest U.S. energy company, declined 2.8 percent to $76.82, while Exxon Mobil Corp., the largest, fell 2.5 percent to $81.06.

Fiddle Faddle

ConAgra Foods Inc., the maker of Banquet frozen dinners, Egg Beaters and Fiddle Faddle popcorn, gained 8 percent to $16.25. ConAgra reiterated its earnings outlook for the 12 months through May as second-quarter profit beat analysts’ estimates by 16 percent, as cash-strapped consumers ate more meals at home. General Mills Inc. also beat estimates and the shares added 0.2 percent to $61.35.

Yesterday’s advance in the S&P 500 was its biggest on a Fed rate-decision day since 1994, when the central bank began announcing its target on the same day the decision was made, according to Bespoke Investment Group LLC. The rally put the index above its average level during the past 50 days for the first time since September.

The Fed said in its statement that the recession is likely to warrant exceptionally low levels of the federal funds rate “for some time.”

The central bank’s decision came after simultaneous recessions in the U.S., Europe and Japan dragged the S&P 500 down almost 45 percent from its 2007 record.

To contact the reporters on this story: Elizabeth Stanton in New York at estanton@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net.