BL: U.S. Stocks Fall, Dow Average Nears Bear Market as Banks Drop
By Lynn Thomasson
June 28 (Bloomberg) -- U.S. stocks slumped this week, pushing the Dow Jones Industrial Average to the brink of a bear market, on mounting concern that writedowns and record oil prices will keep eroding profit and economic growth.
JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. led financial stocks in the Standard & Poor's 500 Index to the fourth week of declines, the longest streak since 2005. Goldman Sachs Group Inc. recommended investors sell bank shares because credit losses will linger into 2009. United Parcel Service Inc. fell the most since July 2006 after saying profit will miss its prior forecast because fuel costs and an ``anemic'' economy reduced demand for air shipments.
The Standard & Poor's 500 Index dropped 3 percent to 1,278.38, a three-month low. The Dow average retreated 4.2 percent to 11,346.51 and needs to fall another 0.1 percent to complete a bear-market decline of 20 percent from its October record. The Nasdaq Composite Index lost 3.8 percent to 2,315.63.
``The market is dealing with anxiety about further losses and also coming to grips that we're in a significantly slower period of economic growth,'' said Kevin Cronin, Boston-based head of investments at Putnam Investments, which manages $180 billion. ``People thought the worst was behind us.''
Nine out of 10 S&P 500 industries fell this week, giving the index an 8.7 percent plunge in June. That's the steepest monthly slide since September 2002. Analysts forecast earnings at companies in the S&P 500 will slump 11 percent on average in the second quarter, according to a Bloomberg survey yesterday, compared with a projected decline of 8.9 percent a week earlier.
`Too Optimistic'
Goldman Sachs strategist David Kostin said expectations for 2008 and 2009 profits are ``too optimistic.'' Credit deterioration won't peak until next year and raising capital has become more difficult for banks and brokerages because deals have performed poorly, he wrote in a report this week.
Financial stocks in the S&P 500 fell the most since March, retreating 6.6 percent. The group tumbled 29 percent this year.
JPMorgan, the bank that bought Bear Stearns Cos. in a Federal Reserve-backed bailout, lost 7.4 percent to $35.05, the lowest price since October 2005. Citigroup, the biggest U.S. bank by assets, tumbled 11 percent to a nine-year low of $17.25. Bank of America, which is acquiring mortgage lender Countrywide Financial Corp., slumped 9.3 percent to $24.59, the lowest since March 2001.
$142.99 a Barrel
Energy stocks in the S&P 500 rose 1.4 percent after crude oil increased to a record $142.99 a barrel in New York. The commodity's surge sent the S&P 500 Consumer Discretionary Index to the lowest level since October 2003, while the Dow Jones Transportation Average, a measure of shipping, trucking and rail stocks, declined 5.5 percent.
``People realize they've underestimated the second-half drag to earnings from all these macro issues that we're dealing with,'' Alexander Young, a New York-based equity-market strategist at Standard & Poor's, said in a Bloomberg Television interview. ``The outlook for stocks looks pretty bad.''
UPS lost 9.1 percent to $60.36. Jet-fuel costs have jumped 30 percent this quarter, and recouping those expenses with surcharges has a two-month lag time, said Kurt Kuehn, chief financial officer for the world's largest package-delivery company.
Research In Motion Ltd. posted the steepest weekly drop since April 2002, tumbling 16 percent to $120.98. The maker of the BlackBerry e-mail phone predicted earnings that missed analysts' estimates on higher spending to fight Apple Inc.'s iPhone. Analysts at Credit Suisse Group AG rated the stock ``underperform'' in new research coverage and said the company's profit growth may slow.
Kodak's Buyback
Eastman Kodak Co. rallied 17 percent, the most since July 1998, to $14.51 for the steepest gain in the S&P 500. The 128- year-old photography company said it would use a tax refund to buy back as much as a quarter of its stock.
The Russell 2000 Index, made up of companies with a median market value of $498 million, dropped 3.8 percent to 698.14 for a steeper weekly loss than the S&P 500.
American Greetings Corp. tumbled 31 percent to $12.54 for the biggest decline since November 2000. Rising production costs caused the second-largest U.S. maker of greeting cards to report 55 percent less per-share profit than analysts estimated, according to Bloomberg data.
The Fed kept its benchmark interest rate at 2 percent on June 25 and warned that faster inflation may accompany some strengthening of the economy.
U.S. employers probably cut jobs in June for a sixth consecutive month, while manufacturing contracted at a faster pace, signaling the expansion is still at risk, economists said before reports next week.
To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.
Last Updated: June 28, 2008 08:00 EDT
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