Note: There are two stories below...one from CNNMoney.com and Bloomberg.com
Worst January ever for Dow, S&P 500 Wall Street slumps Friday at the end of a brutal month. By Alexandra Twin, CNNMoney.com senior writer Last Updated: January 30, 2009: 6:14 PM ET
NEW YORK (CNNMoney.com) -- The Dow Jones industrial average and Standard & Poor's 500 finished their worst January ever Friday as investors eyed abysmal reports on economic growth and quarterly earnings.
The Dow Jones industrial average (INDU) ended the day down 148 points, or 1.8%. The Standard & Poor's 500 (SPX) index lost 19 points, or 2.3%. The Nasdaq composite (COMP) lost 31 points, or 2%.
Stocks gained in the morning as investors breathed a sigh of relief that the abysmal fourth-quarter GDP report was not as bad as economists had expected. Upbeat earnings from Amazon.com and a few other companies also helped Wall Street in the early going.
But any early goodwill soon petered out and stocks turned lower.
Weak readings on manufacturing and consumer sentiment added to the day's declines, as did more layoff news. Talk that Senate Republicans could shoot down the proposed $819 billion economic stimulus plan also weighed on the market, said Tom Schrader, managing director at Stifel Nicolaus.
"There's just nothing good out there," Schrader said.
Companies have announced more than 100,000 job cuts this week alone. "What's especially concerning is that we are seeing companies start to lay people off in anticipation of the slowness rather than in response to it," he said.
Stocks tumbled Thursday following bleak reports on earnings, housing and employment. That caused the Nasdaq and S&P 500 to break a four-session winning streak and the Dow to break a three-session advance.
Investors put money back into stock mutual funds over the past week, after withdrawing money in the previous week. For the week ended Jan. 28, investors poured $6.5 billion into stock funds, according to investment-research firm Trim Tabs. In the previous week, investors pulled $138 million out of funds.
Wretched month: It was the worst Januaryever for the Dow industrials and S&P 500, according to Stock Trader's Almanac data.
The Dow lost 8.8% and the S&P 500 lost 8.6% in the month.
The Nasdaq's loss of 6.4% was eclipsed by last January's loss of 9.9%. That 2008 loss was the worst in the tech average's history, going back to its inception in 1971.
Among the sector decliners during January, it was a particularly ugly month for bank stocks.
Fans of the S&P's January barometer know that a weak January can spell doom for the rest of the year, as per the saying "As goes January, so goes the year."
Standard & Poor's market historian Sam Stovall has looked at the correlation going back to 1945. Since then, whenever the S&P 500 gained in January, the market continued to rise during the rest of the year 85% of the time, posting an average gain of 11.6% during those 11 months.
But the stats are less consistent when the market fell in January. Since 1945, a decline in that month yielded a decline in the next 11 months only 48% of the time, for an average loss in that period of 2.2%.
GDP: Gross domestic product growth, the broadest measure of the nation's economy, plunged at a 3.8% annual rate in the fourth quarter of last year. It was the biggest drop in GDP since the first quarter of 1982, when it declined 6.4%.
Still, economists had forecast that GDP would decline 5.4%, according to a Briefing.com survey. (Full story)
In other economic news, the Chicago PMI, a regional reading on manufacturing, declined to 33.3 from a revised 35.1 in the prior month. Economists expected the reading to come in at 34.9.
The revised reading on January consumer sentiment fell to 61.2 from an initial reading of 61.9, according to a University of Michigan report released Friday morning. Economists thought sentiment would hold steady. Confidence stood at 60.1 in December.
Earnings: Online retailer Amazon.com (AMZN, Fortune 500) reported quarterly sales and earnings that topped analysts' forecasts after the market close Thursday. Shares rallied 17% Friday afternoon, but failed to help the broader market.
Dow component Exxon Mobil (XOM, Fortune 500) reported the largest yearly profit in U.S. history, earning $45.22 billion amid high oil prices. Its fourth-quarter profit fell 33% from a year ago. Nonetheless, results still topped analysts' forecasts.
Fellow oil company and Dow component Chevron (CVX, Fortune 500) reported higher quarterly earnings that topped estimates. Shares of both Exxon and Chevron ended lower.
Dow component Procter & Gamble (PG, Fortune 500) reported a higher quarterly profit that was nonetheless short of forecasts. The company also warned that full-year earnings would not meet its earlier forecast due to weakening demand. Shares fell 6.4%.
Layoffs: Caterpillar (CAT, Fortune 500) announced it is cutting another 2,110 jobs at three Illinois production plant on top of the 20,000 job cuts announced earlier this week. Shares of the Dow component fell almost 3%.
Also on Friday, Japanese electronics firm NEC Corp said it was cutting 20,000 jobs. The company is also reportedly in talks to merge its chipmaker unit with Toshiba.
Corporations have announced over 100,000 layoffs this week alone, including Starbucks (SBUX, Fortune 500), Boeing (BA, Fortune 500), Eastman Kodak (EK, Fortune 500) and Target (TGT, Fortune 500).
Bonds:Treasury prices rose, lowering the yield on the benchmark 10-year note to 2.83% from 2.86% Thursday. Treasury prices and yields move in opposite directions. Yields on the 2-year, 10-year and 30-year Treasurys all hit record lows last month.
Lending rates worsened. The 3-month Libor rate rose to 1.18% from 1.17%, according to Bloomberg.com. Overnight Libor rose to 0.30% from 0.22%.
Other markets: In global trading, Asian markets mostly ended higher, with the exception of the Japanese Nikkei, which closed lower. European markets ended lower.
The dollar gained versus the euro and fell against the yen.
U.S. light crude oil for March delivery rose 42 cents to settle at $41.86 a barrel on the New York Mercantile Exchange.
COMEX gold for April delivery rose $21.90 to settle at $928.40 an ounce.
Gasoline prices rose three-tenths of a cent to a national average of $1.846 a gallon, according to a survey of credit-card swipes released Friday by motorist group AAA
U.S. Economy: GDP Shrinks at Fastest Pace Since 1982 By Timothy R. Homan
Jan. 30 (Bloomberg) -- The U.S. economy shrank the most in the fourth quarter since 1982 as consumer spending recorded the worst slide in the postwar era, a trajectory that’s likely to continue in coming months.
The 3.8 percent annual pace of contraction was less than forecast, with a buildup of unsold goods cushioning the blow. Excluding inventories, the decline was 5.1 percent, the Commerce Department said today in Washington. A survey of purchasing managers also indicated today that business in January was the weakest in almost 27 years.
“The economy carried a lot of negative momentum into the first quarter,” former Federal Reserve Governor Laurence Meyer said in an interview with Bloomberg Television. Without President Barack Obama’s planned stimulus, the deepening recession will cause the jobless rate to soar to 9.5 percent or higher, he said.
Job cuts announced this month by companies from Starbucks Corp. and Pep Boys - Manny, Moe & Jack to Eastman Kodak Co. mean there’ll be little respite in the first half of this year, economists said. The Obama administration used today’s figures to reinforce its call for Congress to pass a stimulus package in excess of $800 billion to arrest the economy’s decline.
“This is a continuing disaster for America’s working families,” Obama said at the White House today. “They need us to pass the American Recovery and Investment Plan,” designed to save more than 3 million jobs, he said. House lawmakers passed the stimulus Jan. 28, moving action to the Senate next week.
Stocks fell, after futures rallied initially as some investors were encouraged by the smaller GDP drop than forecast. The Standard & Poor’s 500 Stock Index decreased 2.3 percent to close at 825.88. Treasuries advanced, sending benchmark 10-year note yields to 2.84 percent at 4:29 p.m. from 2.86 percent late yesterday.
Today’s report underscored the hit to households from the biggest wealth destruction on record. Consumer spending, which accounts for about 70 percent of the economy, dropped 3.5 percent following a 3.8 percent fall the previous three months. It’s the first time decreases exceeded 3 percent back-to-back since records began in 1947.
The Institute for Supply Management-Chicago said today its business barometer decreased to 33.3 from 35.1 the prior month. The index has remained below 50, the dividing line for contraction, for four months. Meanwhile, consumer confidence rose less than forecast this month, a Reuters/University of Michigan index showed. The gauge climbed to 61.2 from 60.1 in December.
A separate report today showed that employment costs in the U.S. rose at the slowest pace in almost a decade in the fourth quarter as companies limited wage gains and benefits. The Labor Department’s employment-cost index rose 0.5 percent.
GDP was forecast to contract at a 5.5 percent annual pace last quarter, according to the median estimate of 79 economists surveyed by Bloomberg News.
“Without the stimulus plan, the economy would be flat to declining in the second half of the year,” said Meyer, who is now vice chairman of Macroeconomic Advisers LLC in Washington. With the recovery package, the unemployment rate may peak at 8 percent instead of 9.5 percent or higher, he added.
The world’s largest economy shrank at a 0.5 percent annual rate from July through September. The back-to-back contraction is the first since 1991.
Economists at Morgan Stanley and Deutsche Bank Securities Inc. in New York lowered their forecasts for growth in the first three months of 2009 following the report. They both now estimate the economy’s worst drop will occur this quarter.
For all of 2008, the economy expanded 1.3 percent as a boost from exports and government tax rebates in the first half of the year helped offset the deepening spending slump.
The GDP price gauge dropped at a 0.1 percent annual pace in the fourth quarter, the most since 1954, reflecting the slump in commodity prices. The Federal Reserve’s preferred measure, linked to consumer spending and excluding food and fuel, rose at a 0.6 percent pace, the least since 1962.
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.
“This is a severe, steep, broadly based recession” with “no quick fix,” Stephen Roach, chairman of Morgan Stanley Asia Ltd., said in a Bloomberg Television interview from Davos, Switzerland today.
Americans may pull back further as employers slash payrolls. Companies cut 524,000 workers in December, bringing total job cuts for last year to almost 2.6 million. The unemployment rate last month was 7.2 percent, up from 4.9 percent a year before.
More cutbacks are on the way. Kodak, Target Corp. and Texas Instruments Inc. are among U.S. companies that announced thousands of layoffs this week.
Target, the second-biggest U.S. discount retailer, said this week it will slash 600 existing jobs and 400 open positions, mainly in its hometown of Minneapolis. It also said it will close a distribution center in Little Rock, Arkansas, later this year that employs 500 workers.
“We are clearly operating in an unprecedented economic environment that requires us to make some extremely difficult decisions,” Chief Executive Officer Gregg Steinhafel said in a Jan. 27 statement.
The economic slump intensified last quarter as companies also retrenched. Business investment dropped at a 19 percent pace, the most since 1975. Purchases of equipment and software dropped at a 28 percent pace, the most in a half century.
The slump in home construction also accelerated, contracting at a 24 percent pace last quarter after a 16 percent drop in the previous three months.
PPG Industries Inc., the world’s second-biggest paint maker, said this week that it may cut as many as 4,500 employees, or 10 percent of its workforce, because of weak global demand from automakers and homebuilders.
“We are probably looking at the sharpest downturn that anyone working at our company has seen,” Chief Executive Officer Charles E. Bunch said in an interview Jan. 27. “The regions outside of North America, which had been really helping PPG in the first three quarters of last year, have sort of caught the disease that started here in the U.S. with the credit crisis.”
The slowdown in global demand indicates American exports are unlikely to contribute to growth in early 2009. World growth will be 0.5 percent this year, the weakest postwar pace, the International Monetary Fund said Jan. 28.
Inventories grew at a $6.2 billion pace in the fourth quarter, the first gain in more than a year. Its contribution to growth was the biggest since the fourth quarter of 2005.
The Fed this week said it’s prepared to purchase Treasury securities to shore up lending and warned inflation may recede too rapidly. Fed policy makers voted to leave the benchmark interest rate as low as zero.
The GDP report is the first for the quarter and will be revised in February and March as more information becomes available.
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