U.S. Stocks Retreat as Earnings Concern Overshadows Stimulus
Nov. 10 (Bloomberg) -- U.S. stocks dropped as a worsening outlook for companies from Goldman Sachs Group Inc. to Google Inc. overshadowed China's $586 billion stimulus plan and pledges by the world's biggest nations to bolster economic growth.
Goldman fell 8.5 percent after Barclays PLC said the stock- market rout may drag the firm to its first quarterly loss since going public. General Motors Corp., which last week said it may run out of cash, lost almost a quarter of its value after Deutsche Bank AG said the automaker's shares may go to zero. Google Inc., the biggest seller of online ads, sank 3.7 percent on concern fourth-quarter revenue growth will stall.
``The market doesn't really have a handle on the depth of the recession's duration,'' said John Wilson, co-director of equity strategy at Memphis, Tennessee-based Morgan Keegan, which manages $120 billion. ``There's still a lot of fear out there.''
The Standard & Poor's 500 Index retreated 1.3 percent to 919.21, extending last week's 3.9 percent slide. The Dow Jones Industrial Average lost 73.27 points, or 0.8 percent, to 8,870.54. The Nasdaq Composite Index slipped 1.9 percent to 1,616.74. Almost three stocks declined for each that advanced on the New York Stock Exchange.
The decline in U.S. equities halted a global rally that sent the MSCI World Index up as much as 2.6 percent after China announced its stimulus package and the Group of 20 nations said it will act ``urgently'' to bolster growth while calling on governments to cut interest rates.
President-elect Barack Obama may inherit the worst U.S. recession since 1982, according to economists' estimates, putting pressure on the Democrat to assemble a response and name his economic team. The S&P 500 has lost 38 percent this year.
Goldman Slides
Goldman, once Wall Street's most profitable securities firm, slumped $6.57 to $71.21 and reached as low as $68.51. The company may post a fourth-quarter loss of $2.50 a share, Barclays said. Analysts at Merrill Lynch & Co., UBS AG, JPMorgan Chase & Co. and Morgan Stanley also forecast a deficit for the New York-based firm.
Goldman identified six equity analysts fired by the firm today, including William Tanona, who covered companies such as JPMorgan Chase & Co., and Deane Dray, who followed General Electric Co. The company, now a commercial bank, cut 3,200 jobs last week.
Financial shares fell the most among S&P 500 industries with a 4.4 percent loss. HSBC Holdings Plc, Europe's biggest bank, predicted climbing loan defaults and set aside a more- than-estimated $4.3 billion to cover bad loans in the U.S.
American Capital Strategies Ltd. had the steepest drop in the benchmark stock index, plunging 43 percent to $7.87. The asset manager that invests in management buyouts suspended its dividend for 2008, posted a loss for the third quarter and said it would buy European Capital Ltd., a fund it spun off in October 2005.
Financials Lead Drop
Financials, which began the year as the biggest part of the S&P 500, slid behind health-care companies to become the third- largest industry in the benchmark index for U.S. equities.
The 53 percent decline in the S&P 500 group of banks, brokerages, insurers and other financial firms this year shrank the industry's market value to less than 14 percent of the total index. A measure of health-care stocks make up 14.3 percent of the S&P 500 and are the second-best performing group with a 25 percent loss this year. Technology companies have the biggest weighting in the S&P 500 at 15.3 percent.
Google Retreats
Google slumped $12.36 to $318.78. Barclays analysts cut fourth-quarter revenue estimates for the company, saying the search-engine business has deteriorated.
Third-quarter earnings shrank 19 percent for S&P 500 companies that reported results so far, according to Bloomberg data. Profits for 2008 will fall an average 8.5 percent, based on a survey of analysts' estimates.
General Motors Corp. fell $1.05 to $3.31. Deutsche Bank's Rod Lache lowered his recommendation on the automaker, which tumbled 25 percent last week, to ``sell'' from ``hold.''
``Even if GM succeeds in averting a bankruptcy, we believe that the company's future path is likely to be bankruptcy- like,'' the analyst wrote in a research report.
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