U.S. Stocks Drop, Capping Market’s Worst January, on Economy

U.S. Stocks Drop, Capping Market’s Worst January, on Economy


By Eric Martin

Jan. 30 (Bloomberg) -- U.S. stocks slid, capping the market’s worst January, as more companies reported disappointing earnings and the economy shrank at the fastest pace in 26 years.

Procter & Gamble Co. lost 6.4 percent as quarterly sales trailed estimates and the company reduced its annual forecast, while Alcoa Inc. fell 7.7 percent after JPMorgan Chase & Co. increased its 2009 loss estimate for the largest U.S. aluminum producer. Fifth Third Bancorp and Regions Financial Corp. tumbled at least 16 percent on a Sanford C. Bernstein & Co. report that the regional banks are in a “precarious position” and may need to raise more capital.

“Procter had disappointing numbers,” said Dan Veru, chief investment officer at Palisade Capital Management in Fort Lee, New Jersey, which oversees about $2 billion. “The guidance was weak. We’re seeing that from a lot of companies, because there’s a lack of confidence from CEOs to make any prediction about their business model. They’re not seeing any improvement.”

The S&P 500 slipped 2.3 percent to 825.88 to complete a fourth straight weekly drop, its longest losing streak since July. The Dow Jones Industrial Average fell 148.15 points, or 1.8 percent, to 8,000.86. The Russell 2000 Index of small U.S. companies declined 2.1 percent.

Benchmark indexes opened higher after the Commerce Department said gross domestic product contracted at a 3.8 percent annual pace in the fourth quarter, less than the 5.5 percent estimated by economists in a survey. Still, the report showed that a buildup of unsold goods helped pare the decrease in gross domestic product.

‘Poor Report’

“It was still a pretty poor report,” said Jeffrey Kleintop, chief market strategist at LPL Financial in Boston, which oversees $233 billion. “If prices hadn’t been falling so dramatically, we would have seen an even worse number.”

Unadjusted for inflation, GDP shrank at a 4.1 percent pace, the most since the first three months of 1958. The drop in so- called nominal growth explains why corporate profits slumped as the year ended.

The S&P 500 fell 8.6 percent this month, eclipsing the 7.6 percent drop at the start of 1970 for the steepest January decline in the gauge’s 81-year history. Profits decreased 38 percent for the 208 companies in the S&P 500 that released fourth-quarter results since Jan. 12. Last quarter is projected to mark the sixth-straight period of decreasing profits, the longest streak on record.

‘January Barometer’

Declines this week were limited following a 3.4 percent rally Jan. 28 on reports President Barack Obama was prepared to set up a so-called bad bank to absorb banks’ toxic investments. The Dow lost almost 1 percent in the week, while the S&P 500 slipped 0.7 percent.

The slide in the S&P 500 this month suggests the so-called January barometer will signal a loss for 2009. The indicator was developed by Yale Hirsch, chairman and founder of the Stock Traders’ Almanac, and built on the theory that the S&P 500’s first-month performance sets its course for the year.

Since 1950, the barometer has been at least 80 percent accurate. One of the exceptions occurred in 1978, when the index rebounded from a January drop of 6.2 percent to close 1.1 percent higher.

The Dow dropped 8.8 percent this month to mark the worst January in its 113-year history. The 30-company benchmark lost 34 percent last year.

Procter & Gamble fell $3.72, or 6.4 percent, to $54.50 and contributed the most to the Dow and S&P 500’s declines. The biggest consumer-product company reported second-quarter sales that fell more than analysts estimated as shoppers curbed purchases and the stronger dollar hurt overseas sales.

Alcoa Loss Estimate

Alcoa dropped 65 cents to $7.79. The aluminum company had its 2009 loss estimate increased to $1.90 a share from $1 by JPMorgan, which said the metal’s price may not rebound as much as it expected.

Caterpillar Inc. dropped $1 to $30.85. The world’s largest maker of bulldozers and excavators said it will dismiss 2,110 factory workers at three Illinois factories as the global recession saps sales. The stock was also added to Goldman Sachs Group Inc.’s “conviction sell” list.

Technology companies were the biggest drag on the S&P 500, losing 2.9 percent collectively, led by Juniper Networks Inc. The second-largest maker of networking equipment dropped $2.81, or 17 percent, to $14.16 after forecasting profit and sales that missed analysts’ estimates.

Financials Slump

Financial firms in the S&P 500 fell 2.5 percent. The government plan to create a “bad bank” may be on hold as regulators and lenders are unable to agree on pricing the hard- to-value assets, CNBC’s on-air editor Charles Gasparino reported, citing unidentified people familiar with the situation.

Citigroup Inc. lost 35 cents, or 9 percent, to $3.55. Bank of America Corp. dropped 20 cents, or 3 percent, to $6.58.

Fifth Third Bancorp and Regions Financial tumbled after Sanford C. Bernstein downgraded the two stocks to “market perform” from “outperform.”

Fifth Third, Ohio’s second-largest bank, sank 22 percent to $2.39. Regions Financial, the biggest in Alabama, slid 16 percent to $3.46.

Exxon, Chevron Beat

Exxon Mobil Corp. gained as much as 2.5 percent and Chevron Corp. rose as much as 3 percent before erasing their gains in the final hour of trading.

Exxon, the world’s largest company by market value, posted a smaller decline in profit than analysts estimated as increased refining earnings cushioned the impact of a record drop in oil prices. Chevron Corp., the second-biggest U.S. oil company, posted an unexpected increase in fourth-quarter earnings after margins on refined fuels widened, blunting the impact of a plunge in crude prices.

Exxon accounts for about 5.4 percent of the Standard & Poor’s 500 Index’s value, according to data compiled by Bloomberg. The world’s largest oil company carries the most weight of any company since 1985, when International Business Machines Corp. was 6.37 percent, year-end figures compiled by Birinyi Associates Inc. show.

Crude oil rose as OPEC implemented supply cuts announced last month while signaling it may make more. Crude oil for March delivery rose 31 cents, or 0.8 percent, to $41.75 a barrel.

Amazon.com climbed the most in the S&P 500, advancing $8.82, or 18 percent, to $58.82. The largest Internet retailer said net income increased 8.7 percent to $225 million after its biggest holiday season ever, outpacing EBay Inc. and its e- commerce rivals.

Paccar Inc. increased $1.47, or 5.9 percent, to $26.39. The maker of Kenworth and Peterbilt trucks reported fourth-quarter profit of 31 cents a share, exceeding the 30-cent average estimate from a Bloomberg survey of analysts.