By Whitney Kisling
Dec. 9 (Bloomberg) -- U.S. stocks slid, halting a two-day advance, after companies from FedEx Corp. to Danaher Corp. forecast earnings that disappointed investors as the deepening recession crimps sales.
FedEx tumbled 14 percent, its steepest loss in 21 years, after the second-biggest U.S. package-shipping company projected profit below analysts’ estimates amid a “significantly weaker” economy. Danaher, maker of Craftsman tools, slid 4.2 percent. JPMorgan Chase & Co. and Wells Fargo & Co. dropped almost 7 percent as yields on three-month Treasuries turned negative for the first time, signaling increasing stress in credit markets.
“Investors have been schizophrenic here for a couple months, and I don’t see any change in that,” said Henry Herrmann, chief executive officer of Waddell & Reed Financial Inc. in Overland Park, Kansas, which manages about $50 billion. “We still have very thin trading, and there’s a lot of nervousness.”
The S&P 500 lost 2.3 percent to 888.67, extending declines late in the day as a drop in oil snuffed out gains in energy shares. The Dow Jones Industrial Average declined 242.85 points, or 2.7 percent, to 8,691.33 and the Nasdaq Composite Index slipped 1.6 percent to 1,547.34. About three stocks fell for each that rose on the New York Stock Exchange.
Rebound from 11-Year Low
All 10 industry groups in the S&P 500 retreated a day after the benchmark gauge of U.S. equities extended its gain from an 11-year low last month to 21 percent. About 1.4 billion shares changed hands on the floor of the NYSE, 12 percent less than the three-month daily average.
The S&P 500 yesterday marked a technical end to the 14- month bear market as President-elect Barack Obama pledged the biggest public-works spending package since the 1950s. The index has fallen 43 percent from its 2007 record as the collapse of the subprime mortgage market curbed earnings for five straight quarters.
European shares rose for a second day and Asian stocks climbed for a third on expectations stimulus plans from the U.S. to India will buoy the global economy. PPR SA, owner of the Gucci luxury-goods brand, and Daimler AG, the world’s second- largest maker of luxury cars, jumped more than 4 percent, while Australia’s BHP Billiton Ltd. climbed 4.5 percent.
Stocks will climb in 2009 in the face of falling earnings and a slowdown in economic growth because of cheap valuations, according to strategists at Credit Suisse Group AG, Deutsche Bank AG and Merrill Lynch & Co. The S&P 500 may rise to 1,050 by the end of 2009 from yesterday’s close, a team of Credit Suisse strategists wrote in a note today. Goldman Sachs Group Inc.’s chief investment strategist David Kostin projected a 21 percent gain by the end of next year as the economy stabilizes.
FedEx, Con-Way
FedEx fell $10.78 to $63.65 after saying annual profit may be as much as one-third lower than analysts expected. Larger rival United Parcel Service Inc. fell $4.11 to $54.51, the most since Oct. 22.
FedEx dragged industrial companies in the S&P 500 down 3.3 percent collectively. Union Pacific Corp. slid 7.4 percent to $46.90 after Merrill Lynch & Co. cut the railroad operator’s shares to “neutral” from “buy.”
Con-way Inc., the second-biggest U.S. trucker, reduced its full-year 2008 earnings forecast to as much as 20 percent less than analysts’ average estimate as freight demand fell to 2003 levels. The company also cut 1,450 jobs. The shares slid 14 percent to $22.19, the lowest level in more than seven years.
Danaher Corp. fell 4.2 percent to $49.78. The company said fourth-quarter profit will be lower than previously forecast. Danaher will close 13 factories and cut 1,700 jobs because of the deteriorating economy.
‘The Real Economy’
“You’re going to have to get used to this for the next three months; you’re going to see lowering of guidance,” said Robert Lutts, president and chief investment officer at Cabot Money Management, which oversees $400 million in Boston. “This is the real economy.”
Kroger Co. helped lead a group of companies that sell consumer staples down 2.7 percent after saying third-quarter profit fell because of insurance costs related to Hurricane Ike. Shares of the biggest U.S. grocery chain fell 6.7 percent to $25.47. Safeway Inc., the third-largest, lost 6.7 percent to $22.04.
Wal-Mart Stores Inc. fell 3 percent to $55.81 after the world’s largest retailer said it’s “temporarily” suspending a share repurchase program because of “instability in credit markets” and the shrinking economy.
Profit Slump
The 496 companies in the S&P 500 that reported third- quarter results saw an average 18.3 percent decline in profits, prompting analysts to cut estimates for next year. They now project profit growth of 8.2 percent for S&P 500 companies in 2009, about one-third of their forecast of 23 percent at the end of the third quarter, according to data compiled by Bloomberg.
Fewer Americans signed contracts to buy previously owned homes in October, signaling the housing slump will extend into a fourth year. The index of signed purchase agreements, or pending home resales, fell a less-than-forecast 0.7 percent to 88.9 from a revised 89.5 in September, according to a report from the National Association of Realtors. Gains in the South and Northeast offset weakness in the West and Midwest.
General Motors Corp., the largest U.S. automaker whose shares surged 21 percent yesterday, fell 4.7 percent to $4.70. Congressional Democrats sent President George W. Bush a draft proposal for a $15 billion, short-term aid package for U.S. automakers. Some Senate Republicans have expressed doubt about the plan, with one top Republican saying disputes remain over a “deeply flawed” proposal.
‘Implosion’
General Motors has lost more than half its value this quarter alone, as it pleaded for a multibillion-dollar government bailout to keep it from collapsing.
Ford Motor Co., the second-biggest U.S.-based automaker, declined 4.4 percent to $3.23.
The U.S. government may end up holding stakes in GM, Ford and Chrysler LLC if Congress and the White House reach agreement. Under the proposed rescue, details of which are still being discussed, the Treasury would get warrants for stock equivalent to 20 percent of any government loans. With GM seeking as much as $10 billion and valued at $3 billion, the government may become the biggest shareholder.
“The thing that has shaken people more than anything else is the implosion of these major household names,” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, which manages $30 billion. “When the auto industry looked like it was on the verge of disappearance the market hit a low. That really shakes people.”
Negative Yields
S&P 500 financial companies, which have rebounded 39 percent collectively from a 13-year low on Nov. 20, dropped the most of 10 industry groups today, losing 4.9 percent.
JPMorgan fell 6.9 percent to $33.96, while Wells Fargo Co. slid 6.6 percent to $30.50.
Yields turned negative after the Treasury sold $27 billion of three-month bills yesterday at a discount rate of 0.005 percent, the lowest since it starting auctioning the securities in 1929. The U.S. also sold $30 billion of four-week bills today at zero percent for the first time since it began selling the debt in 2001.
T. Rowe Price Group Inc. was cut to “sell” from “neutral” at Goldman Sachs Group Inc. on “rising fundamental headwinds.” T. Rowe, the Baltimore-based money manager, slid 6.9 percent to $34.13, the first decline in six trading sessions.
SunTrust Banks Inc., Georgia’s largest lender, declined 11 percent to $30.04, while Bank of New York Mellon Corp. slid 10 percent to $27.63.
More than $31 trillion has been erased from the value of global equities this year, while debt losses and writedowns at the world’s largest lenders and insurers approach $1 trillion.
To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net.
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