Oct. 19 -- U.S. stocks tumbled the most in two months after earnings reports from banks, manufacturers and industrial companies heightened concern about the health of financial markets and the economy.
The Dow Jones Industrial Average lost 367 points and closed at the lowest since the Federal Reserve cut its benchmark lending rate Sept. 18. Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. led financial shares to their worst week since 2002 after Wachovia Corp. said loan defaults reduced profit. Energy producers dropped the most in two years.
The retreat pushed benchmark indexes to their biggest weekly loss since July. Two-year Treasury notes rallied the most since September 2001 as investors sought the safety of government debt. The Standard & Poor's 500 Index slipped 39.45, or 2.6 percent, to 1,500.63. The Dow declined 2.6 percent to 13,522.02. The Nasdaq Composite Index slid 74.15, or 2.7 percent, to 2,725.16.
``Today was a market explosion,'' said Frederic Dickson, chief market strategist at D.A. Davidson & Co., which manages $23 billion in Lake Oswego, Oregon. ``There's going to be a lot of pain and suffering.''
S&P 500 companies have posted an average profit decline of 0.6 percent in the third quarter, the first drop since 2002, according to Bloomberg data. Twenty-seven percent of the 132 companies in the index that have reported results so far have trailed analysts' estimates, compared with 21 percent in the second quarter.
Weekly Drop
The S&P 500 fell 3.9 percent this week and the Dow average lost 4.1 percent. The Nasdaq declined 2.9 percent.
All 10 industry groups in the S&P 500 decreased today, with 481 of the index's members posting declines. Energy shares posted the steepest decline after crude oil retreated from a record. More than 17 stocks dropped for every one that gained on the New York Stock Exchange. A gauge of stock-market volatility rose the most since March 13.
Wachovia declined $1.74, or 3.6 percent, to $46.40. The fourth-biggest U.S. bank reported its first earnings decline in six years and missed analysts' estimates after a record $1.3 billion of writedowns for bad loans and mortgage-backed securities.
Citigroup, the largest U.S. bank, declined $1.47 to $42.36, its lowest value since June 2003. Bank of America, the second biggest, fell $1.28 to $47.57. JPMorgan, the No. 3, retreated 88 cents to $45.02.
Profit at the five biggest U.S. banks totaled $18.7 billion for the quarter, the lowest in almost four years, as demand for securities linked to mortgages and leveraged loans dried up.
`Radioactive Waste'
More than one-third of the 92 financial companies in the S&P 500 have reported third-quarter results. Their 17 percent average profit drop is the biggest since Bloomberg began tracking quarterly earnings growth in the third quarter of 1997.
Financial firms account for about 19 percent of the S&P 500's value and produced 27 percent of the index's profits last quarter, according to Bloomberg data.
``Right now financial stocks are like radioactive waste,'' said Michael James, senior equity trader at Wedbush Morgan Securities in Los Angeles. ``People just do not want to touch them.''
The S&P 500 Financials Index fell 2.9 percent today, its biggest drop since Aug. 28, and has retreated 11.3 percent this year.
Merrill Lynch & Co., the biggest U.S. brokerage, tumbled $3.81, or 5.4 percent, to $66.26. Morgan Stanley, the second- biggest U.S. investment bank, slid $3.45, or 5.3 percent, to $61.95. Goldman Sachs Group Inc., the most profitable securities firm, slid $10.16, or 4.5 percent, to $217.69.
Countrywide Financial
Countrywide Financial Corp., the second-worst performer in the S&P 500 this year, lost $1.28 to $15.23, the lowest since April 2003.
Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., yesterday denied speculation that he bought shares of Countrywide, the biggest U.S. mortgage company, or Hovnanian Enterprises Inc., a New Jersey-based homebuilder. Neither stock is undervalued, Buffett said in an interview on Fox Business Network. Hovnanian, which has dropped 69 percent since December, added 27 cents to $10.55.
The Chicago Board Options Exchange Volatility Index increased 24 percent to 22.96, the highest since Sept. 17. Higher readings in the so-called VIX, derived from prices paid for S&P 500 options, indicate traders expect bigger share-price swings in the next 30 days.
`A Lot of Questions'
``The market was going into earnings season expecting the best and it discovered the financial area still has a lot of questions and the other parts of the economy have corporate managements that are a lot less confident about the future,'' said Gordon Fowler, who helps manage $6 billion as chief investment officer at Glenmede Investment Management in Philadelphia.
Crude oil fell 87 cents to $88.60 a barrel on signs that U.S. supplies are sufficient to meet demand. Earlier it rose above $90 a barrel in New York for the first time. The S&P 500 Energy Index dropped 4.3 percent, the steepest tumble since October 2005, and pared its 2007 advance to 26 percent.
Exxon Mobil Corp., the world's largest oil company, lost $2.91 to $92.14. Chevron Corp., the second-biggest U.S. energy producer, retreated $3.15 to $89.27.
Schlumberger Ltd. lost $12.30, or 11 percent, to $99.32 for the biggest drop since February 2001. The largest oilfield- services provider reported third-quarter revenue in North America fell and said projects were delayed in Nigeria and the Caspian region because of equipment and labor shortages.
Drillers Slump
Oilfield-service companies accounted for four of the top 10 percentage declines in the S&P 500. Halliburton Co., the second- largest oilfield contractor, dropped $2.16 to $38.85.
``When you have earnings expectations that are negative going into the third-quarter reporting season and you start to get some disappointments on top of that after five years of double-digit earnings growth, this market's going to struggle,'' said David Joy, who helps manage $160 billion as chief market strategist at RiverSource Investments LLC in Minneapolis.
Honeywell International Inc. lost $2.37, or 3.9 percent, to $58.32. The world's largest maker of aircraft controls said demand for some of its products may wane because of a slowdown in the U.S. automotive and housing markets.
Caterpillar Inc. decreased $4.09, or 5.3 percent, to $73.57 for its largest drop in a year. The housing slump will lead to a 12 percent decline in North American machinery and engine sales this year, Caterpillar said. Earnings will be $5.20 to $5.60 a share in 2007, down from a July projection of $5.30 to $5.80, the company said.
`Weaker' Results
``The early reports in the industrial area are coming in weaker than had been expected and, more importantly, companies are not raising guidance,'' said Bruce McCain, who helps oversee about $30 billion as head of strategy for the investment management unit at Key Private Bank in Cleveland. ``We continue to see slowing across a broad range of fronts.''
3M Co. and SanDisk Corp. also plunged after reporting earnings.
3M tumbled $8.11, or 8.6 percent, to $86.62 for the biggest drop since July 2006. The maker of 50,000 products from Post-it Notes to electronic road signs reported third-quarter sales of $6.18 billion, trailing the $6.29 billion average estimate of analysts surveyed by Bloomberg.
SanDisk dropped $7.60, or 15 percent, to $42.71. The biggest maker of memory chips for digital cameras said prices in the fourth quarter will fall ``moderately more'' than the 16 percent third-quarter drop because of holiday promotions.
Fed Watch
Traders increased wagers that the Fed will lower its benchmark interest rate to 4.25 percent by the end of the year after S&P lowered ratings on about $22 billion of mortgage securities and Cheyne Finance Plc and Rhinebridge Plc, two structured investment vehicles that bought securities backed by home loans, defaulted on more than $7 billion of debt.
SIVs, which borrow in the commercial paper market to fund purchases of asset-backed securities, have been forced to sell assets as investors balked at financing their investments.
The odds of a quarter-percentage point rate cut to 4.5 percent at the central bank's Oct. 31 policy meeting are 92 percent, up from 70 percent yesterday, futures contracts show. Futures are also pricing in a 74 percent chance of another quarter-percentage point cut at the Dec. 11 meeting.
Google Inc. climbed $5.09 to $644.71. Four brokerages raised their price projections for the stock to at least $800 after the owner of the most-popular Internet search engine reported better- than-expected earnings and predicted growth from advertisements on mobile phones and YouTube.
Boston Scientific Corp. increased 57 cents to $14.42. The world's biggest maker of drug-coated heart stents posted profit excluding some items that beat analysts' estimates as sales of the artery-opening devices fell less than expected.
Some 1.8 billion shares changed hands on the NYSE, 9.5 percent more than the three-month daily average. Volume was higher because October options contracts on stocks and some indexes expire today, traders said.
The Russell 2000 Index, a benchmark for companies with a median market value of $652 million, dropped 3.2 percent to 798.79. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, declined 2.5 percent to 15,174.49. Based on its retreat, the value of stocks decreased by $491 billion.
Today is the 20th anniversary of ``Black Monday,'' when an increase in U.S. interest rates and slowing economic growth sparked a panic that sent the Dow average down 23 percent in one day. The 30-stock gauge would have to fall 3,110 points at today's level for a drop of that scale.
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