U.S. Stocks Plunge; Dow Has Biggest Loss In 2 Years, Led By IBM
U.S. Stocks Plunge; Dow Has Biggest Loss in 2 Years, Led by IBM
April 15 (Bloomberg) -- U.S. stocks tumbled, pushing the Dow Jones Industrial Average to its biggest drop in almost two years, in a selloff sparked by International Business Machines Corp.'s disappointing earnings report.
Benchmark indexes had their steepest weekly declines since at least August, led by companies such as General Motors Corp. and Alcoa Inc., as well as IBM.
``The significance of IBM is more than just technology -- in the eyes of the market, it's indicative of the slowing economy,'' said Christopher Sheldon, who helps manage $76 billion as director of investment strategy at Mellon Private Wealth Management in Boston.
Losses circled the globe amid renewed concern that demand in the world's largest economy may be waning. An improved profit outlook from General Electric Co. and better-than-expected earnings from Citigroup Inc. failed to boost the U.S. market.
The Dow average slid 191.24, or 1.9 percent, to 10,087.51, its worst one-day performance since May 2003. The Standard & Poor's 500 Index lost 19.43, or 1.7 percent, to 1142.62, its largest drop since September 2003. The Nasdaq Composite Index slumped 38.56, or 2 percent, to 1908.15.
On the New York Stock Exchange, almost seven stocks fell for every one that gained, the broadest retreat in at least nine months. Some 2.2 billion shares changed hands on the Big Board, making it the second-busiest trading day this year.
2005 Lows
Benchmark indexes closed out the week at 2005 lows. The Nasdaq plunged 4.6 percent and the S&P 500 dropped 3.3 percent, capping their worst weeks since August. The Dow average retreated 3.6 percent, its steepest weekly decline since March.
IBM reported after the U.S. market close yesterday and stocks dropped in Asia and Europe in the wake of the results. Earnings shortfalls from Samsung Electronics Co. and Sony Corp.'s mobile-phone venture with Ericsson AB contributed to the losses. The Morgan Stanley Capital International World Index tumbled 1.3 percent, its biggest retreat in 11 months.
The U.S. is the ``locomotive,'' said Jon Brorson, who helps manage $72 billion as head of growth investing at Neuberger Berman Inc. in Chicago. ``If the engine stops, the rest of the train can't continue to progress and that's why we're seeing the reaction worldwide.''
IBM, the world's No. 1 computer-services company, dropped $6.94, or 8.3 percent, to $76.70, its largest plunge in three years. Revenue across the services, software and hardware units didn't meet projections in the final two weeks of the quarter. Profit from continuing operations was 85 cents a share, missing the 90-cent average analyst estimate in a Thomson Financial poll.
Trend?
IBM ``darkens the whole picture,'' said Roberto Cominotto, who helps manage the equivalent of about $16 billion at Ehinger & Armand von Ernst AG in Zurich, a private bank which is part of UBS AG. ``People will have to wait to see if other results confirm this trend.''
Companies most closely tied to economic growth extended their losses. The Morgan Stanley Cyclical Index, which measures such ``cyclical'' shares, has its biggest three-day drop since October 2002.
GM, the world's biggest automaker, fell $1.06 to $25.60, leaving it down 13 percent this week and at its lowest in more than 12 years. Alcoa, the No. 1 maker of aluminum, slid 60 cents to $29.30, for a weekly loss of 7.3 percent. A gauge of automobile and auto-parts makers has tumbled 13 percent since April 8, while producers of raw materials have dropped 8.1 percent as a group.
A measure of energy shares lost 3.9 percent, bringing its slide this week to 6.9 percent, as oil prices fell. Crude for May delivery today retreated 1.3 percent to $50.49 a barrel in New York. Exxon Mobil Corp., the biggest publicly traded oil company, sank $2.56 to $56.19.
Economic Data
Economic reports today reinforced concern that the economy is slowing as production at U.S. factories dropped for the first time in six months and consumer sentiment slumped, adding to evidence that higher commodities prices are taking a toll.
Industrial production rose 0.3 percent in March, matching estimates, while manufacturing produced fewer goods. The gain in overall production compared with a 0.2 percent increase in February, the Federal Reserve said.
Consumer confidence fell to the lowest since September 2003 as rising gasoline prices took a greater share of people's incomes. The University of Michigan's preliminary index of consumer sentiment dropped to 88.7 in April from 92.6. Economists polled by Bloomberg News expected a reading of 91.5.
Manufacturing in New York state increased at the slowest pace in two years. The Empire State Manufacturing Survey, which gives a clue to the current performance of U.S. industry, slumped to 3.1 this month, the lowest since the index showed contraction in April 2003, from 20.2 last month.
Technology Shares
A gauge of technology shares sank 3.1 percent for the second- worst performance among 10 industry groups in the S&P 500.
Sun Microsystems Inc. dropped 30 cents to $3.66. The world's No. 3 maker of servers that run corporate networks yesterday reported a third-quarter loss, excluding some items, of 2 cents a share, missing the break-even analyst estimate.
GE, the largest company by market value, added 25 cents to $35.75. GE said 2005 earnings per share will be $1.78 to $1.83, an increase of 2 cents at the lower end of the range. First- quarter profit climbed 25 percent, the most in five periods, spurred by orders for industrial goods and acquisitions in health care, water treatment and security.
Citigroup
Citigroup advanced 35 cents to $45.75. The world's biggest financial-services company said first-quarter earnings increased to $1.04 a share on lower credit losses at its consumer-banking unit and higher investment gains. That surpassed the $1.02 average analyst estimate in a Thomson poll. Citigroup said it will increase share buybacks by as much as $15 billion.
Drug stocks rose after Eli Lilly & Co. won a court ruling that protects its best-selling schizophrenia treatment from generic competition.
Lilly jumped $2.91, or 5.3 percent, to $58.07 for the biggest rally in the S&P 500. A U.S. court upheld the patent on Lilly's $4.4 billion-a-year Zyprexa treatment until 2011.
Pfizer Inc., whose cholesterol treatment Lipitor is in a patent case, climbed 26 cents to $27.71. Bristol-Myers Squibb Co., which is facing generic competition for four medicines by 2010, advanced 13 cents to $25.95.
Genentech Inc., the world's No. 2 biotechnology company, surged $10.72, or 18 percent, to $69.35. A study found the company's Avastin drug slowed the progression of breast cancer by about four months.
QQQQs, Futures
The S&P 500 shares, called Spiders, fell $1.62 to $114.15. Nasdaq-100 tracking shares, known by their QQQQ symbol, lost 81 cents to $34.74.
S&P 500 futures expiring in June dropped 17 to 1143.60 on the Chicago Mercantile Exchange. Nasdaq-100 Index futures tumbled 26.50 to 1414.50.
The Russell 2000 Index, which tracks companies with a median market value of $523 million, declined 1.9 percent to 580.78. The Dow Jones Wilshire 5000 Total Market Index, the broadest measure of U.S. shares, slumped 184.82, or 1.6 percent, to 11,244.80. Based on changes in the Wilshire, the value of stocks decreased by $221.8 billion.
Alcoa Inc. (AA US)
Bristol-Myers Squibb Co. (BMY US)
Citigroup Inc. (C US)
Eli Lilly & Co. (LLY US)
Exxon Mobil Corp. (XOM US)
Genentech Inc. (DNA US)
General Electric Co. (GE US)
General Motors Corp. (GM US)
International Business Machines Corp. (IBM US)
Pfizer Inc. (PFE US)
Sun Microsystems Inc. (SUNW US)
To contact the reporter on this story:
Dune Lawrence in New York at dlawrence6@bloomberg.net.
To contact the editor responsible for this story:
John Melloy at jmelloy@bloomberg.net.
Last Updated: April 15, 2005 17:18 EDT
