Sunday 13 January 2008

U.S. Stocks Drop for Third Week as Recession Speculation Builds

U.S. stocks fell for a third straight week, the longest streak since August, after forecasts from AT&T Inc., American Express Co. and Tiffany & Co. bolstered speculation that the six-year economic expansion is ending.

AT&T dropped the most since 2003 on the New York Stock Exchange after saying customer demand weakened. American Express had the steepest loss since September 2001 after adopting a ``cautious view'' for the year. Tiffany tumbled the most in 5 1/2 years on slower holiday sales. Goldman Sachs Group Inc. economists said the U.S. may already be in a recession, joining counterparts at Morgan Stanley and Merrill Lynch & Co.

The Standard & Poor's 500 Index fell 0.8 percent to 1,401.02 this week, bringing its year-to-date loss to 4.6 percent for the worst start since 1982, according to Bloomberg data. The measure fell to an almost 10-month low on Jan. 8. The Dow Jones Industrial Average sank 1.5 percent to 12,606.30. The Nasdaq Composite Index declined 2.6 percent to 2,439.94.

``We certainly have another couple of months to go before we see the bottom of this thing,'' said Richard Weiss, who helps manage about $60 billion as chief investment officer at City National Bank in Beverly Hills, California. ``The duration of the downturn is still unknown.''

AT&T fell 6.6 percent to $38.20 this week for the third- largest decline in the Dow average behind American Express and Alcoa Inc. Chief Executive Officer Randall Stephenson said slowing economic growth led to ``softness'' in the home-phone and Internet businesses.

Delinquencies Rise

American Express retreated 10 percent to $44. The third- largest U.S. credit-card network reported a $275 million charge amid signs the housing slump is spreading to consumer spending. December cardholder spending slowed and delinquencies rose, particularly in California, Florida and other areas affected by the housing slump, Chief Executive Officer Kenneth Chenault said in a statement.

Tiffany, the world's second-largest luxury-jewelry retailer, dropped 13 percent to $35.80. A drop in holiday sales prompted the company to cut its profit forecast and consider lowering 2008 targets.

Tiffany led merchants in the S&P 500 to a 3.3 percent drop. Gap Inc. fell 13 percent, the most since August 2004, to $17.20. Sales at U.S. stores open at least a year rose 2.2 percent in November and December, the smallest increase in five years, the International Council of Shopping Centers said Jan. 10.

`Kill The Consumer'

``It's very difficult to kill the consumer,'' said Lawrence Creatura, who helps manage about $2.6 billion at Clover Capital Management Inc. in Rochester, New York. But ``with declining home prices, and the contraction in credit, and an increase in unemployment and an increase in the cost of living, we're going to find out if we can kill the consumer.''

The unemployment rate jumped to a two-year high in December and job growth was the slowest since August 2003, the Labor Department said Jan. 4. A private report the same week showed the largest decline in manufacturing in five years.

Yields on Treasury securities sank after Federal Reserve Chairman Ben S. Bernanke signaled he may cut interest rates further to prop up the economy. The two-year note fell 0.19 point to 2.55 percent, the lowest since October 2004. Futures contracts for the first time gave more than zero odds that the central bank will cut its benchmark to 3.50 percent from 4.25 percent this month.

Crude oil fell 5.3 percent to a three-week low of $92.69 a barrel in New York on speculation that a global economic slowdown will cut energy consumption.

Lowest Since 2000

Countrywide Financial Corp., which tumbled 79 percent last year, lost a quarter of its value after Bank of America Corp. agreed to purchase the mortgage lender for less than its market price. Countrywide dropped to $6.33, the lowest since March 2000. Bank of America slumped 3.4 percent to $38.50, a four-year low.

MEMC Electronic Materials Inc. and Nvidia Corp. led semiconductor and semiconductor equipment makers in the S&P 500 to a 17-month low on speculation that computer demand will slow. The group lost 4.4 percent, the second-steepest loss after phone companies among 24 industries in the S&P 500. MEMC fell 12 percent, the most since July 2006, to $71.75. Nvidia fell 9.8 percent to $27.05.

S&P 500 companies scheduled to report quarterly results next week include Citigroup Inc., General Electric Co., Intel Corp., International Business Machines Corp., JPMorgan Chase & Co. and Merrill Lynch & Co. Analysts expect fourth-quarter profit for index members as a group to fall 10 percent, resulting in the first back-to-back quarterly declines since the six months ended March 2002, according to data compiled by Bloomberg.

69.3 Percent Decline

The financial industry, the biggest among 10 in the S&P 500, may report a 69.3 percent decline in earnings, as falling home prices and rising adjustable mortgage rates has rendered many homeowners unable to stay current on the payments that back debt securities held by Wall Street firms. Eight industries will report profit gains, led by 31 percent and 22 percent increases at telephone and technology companies, respectively.

``Earnings are going to continue to be pretty good for most of the market,'' said Michael Vogelzang, who oversees $2.3 billion as president and chief investment officer at Boston Advisors LLC in Boston. ``Unfortunately the largest sector in the S&P 500 is financials and we can expect to see miserable and difficult earnings in financials.''

Technology stocks have fallen the most so far this year in the S&P 500, losing 9.5 percent. Financial shares have retreated 5.4 percent. Health-care stocks have risen 3.4 percent, while utilities have added 1.7 percent.

Sales at U.S. retailers stalled in December, capping the weakest holiday-shopping season in five years, economists said before reports next week. Purchases were unchanged, following a 1.2 percent gain in November, according to the median estimate in a Bloomberg survey before the Commerce Department's Jan. 15 report. Other reports may show residential construction fell and inflation eased.

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net .