Stocks tumbled Thursday as a rash of job cuts at major companies added to jitters ahead of the November jobs report.
The Dow Jones industrial average (INDU) ended down 215 points, recovering from a decline of as much as 332 points earlier in the afternoon. The Standard & Poor’s 500 (SPX) index fell 2.9% and the Nasdaq composite (COMP) retreated 3.1%.
Stocks seesawed through the morning, but turned lower in the last hour of the session. Wall Street has been reversing direction fairly regularly in the last hour of trading each day.
"It’s the 3 o’clock shuffle," said Joseph Saluzzi, co-head of equity trading at Themis Trading.
He said that with the uncertainty about the automakers and the worry about the November jobs report due Friday, investors would rather back out of stocks.
Executives from GM, Ford Motor and Chrysler testified before a Senate panel in an effort to get a $34 billion aid package from Congress. They speak before a House panel Friday.
Oil prices at an almost 4-year low and a selloff in gold and other metals kept the global recession in focus and added to the stock selling, Saluzzi said.
While the recession hasn’t seen its turning point yet, the stock market is trying to bottom, said Will Hepburn, president and chief investment officer at Hepburn Capital Management
"The government has put a lot of money to work, and at some point that money will come back into the economy and stock market," Hepburn said.
The problem in the short term, he said, is that between hedge fund redemptions and tax-loss selling, investors are going to want to sell into rallies through year-end.
"These are bear market spikes and they’re painful for people because they fizzle out quickly," Saluzzi said.
Research firm TrimTabs estimates that hedge fund redemptions between September and year-end will likely reach $250 billion.
Jobs: On Friday, the government is expected to report that employers cut 325,000 non-farm jobs from their payrolls in November after cutting 240,000 in the previous month.
The unemployment rate, generated by a separate survey, is expected to have risen to 6.8% from 6.5% in the previous month.
Ahead of that report, a slew of major companies announced more than 20,000 job cuts Thursday.
Among the standouts: AT&T (T, Fortune 500) said it would cut 12,000 jobs, or 4% of its workforce, while DuPont (DD, Fortune 500) said it was cutting 2,500 jobs. Both companies are Dow components. Also, Swiss bank Credit Suisse (CS) said it was cutting 5,300 jobs, or about 11% of its workforce, in the U.S. and globally.
A trio of financial services firms announced 3,000 job cuts Wednesday.
Also on Wednesday, payroll-processing firm ADP said 250,000 private sector jobs were cut.
In other employment news, the number of Americans filing new claims for unemployment benefits last week dipped to 509,000 from a revised 530,000 the previous week. Economists surveyed by Briefing.com expected jobless claims of 540,000.
Automakers: The Big Three automakers began two days of testimony on Capitol Hill, pleading for a bailout after being rebuffed last month.
On Tuesday, GM (GM, Fortune 500), Ford Motor (F, Fortune 500) and Chrysler each submitted their turnaround plans to Congress. The automakers are looking to receive a combined $34 billion in aid versus the initially requested $25 billion online payday loan. Early reports say Congress is unlikely to grant their requests.
The Senate Banking Committee held its hearing Thursday, while the House Financial Services Committee will hold its hearing Friday. (Full story)
Retailers: Wal-Mart Stores (WMT, Fortune 500) continued to outperform the overall retail sector as consumers sought bargains amid the economic crisis. Wal-Mart reported a 3.4% rise in November same-store sales, or sales at stores open a year or more. That was above the company’s growth forecast of 1% to 3%.
But other chains had a rougher period. Sales at Wal-Mart rival Target (TGT, Fortune 500) fell 10.4%, department store chain Nordstrom (JWN, Fortune 500)’s sales fell 15.9% and teen clothing chain Abercrombie & Fitch (ANF)’s sales fell 28%. (Full story)
Oil and metal stocks slipped with the raw commodities. Dow stocks Exxon Mobil (XOM, Fortune 500), Chevron (CVX, Fortune 500) and Alcoa (AA, Fortune 500) all declined.
Market breadth was negative. On the New York Stock Exchange, decliners beat advancers by nearly three to one on volume of 1.47 billion shares. On the Nasdaq, losers topped winners by five to two on volume of 2.10 billion shares.
Other economic news: A report showed that October factory orders fell 5.1% after declining a revised 2.5% in September. Economists thought orders would fall 4.5%.
Federal Reserve Chairman Ben Bernanke said Thursday that the housing market is the key to the economic recovery and that the government has to do more to deal with foreclosures.
Bonds: Treasury prices rallied, lowering the yield on the benchmark 10-year note to 2.56% from 2.66% late Wednesday. The 10-year yield dipped below 3% last week for the first time since the note was first issued in 1962. Treasury prices and yields move in opposite directions.
The yield on the 3-month Treasury bill inched up to 0.02% from 0.01% Wednesday, but still near the 68-year low of zero hit last month. The 3-month is seen as the safest place to put money in the short term. A low yield means wary investors would rather preserve cash despite earning little or no interest on it than risk the stock market.
Lending rates eased. The 3-month Libor rate slipped to 2.19% from 2.20% Wednesday, while overnight Libor fell to 0.52% from 0.88% Wednesday, according to Bloomberg. Libor is a key bank lending rate.
Other markets: In global trading, Asian markets ended lower. European markets ended lower, erasing earlier gains after the European Central Bank, the Bank of England and Sweden’s Riksbank all lowered rates. (Full story)
The dollar gained versus the euro and fell against the yen.
U.S. light crude oil for January delivery fell $3.12 to settle at $43.67 a barrel on the New York Mercantile Exchange, ending at a nearly 4-year low.
COMEX gold for February delivery lost $5 to settle at $765.50 an ounce.
Gasoline continued its fall to nearly four-year lows, with prices down 1.4 cents to a national average of $1.789 a gallon, according to a survey of credit-card swipes released Thursday by motorist group AAA. Prices have been sliding for 2-1/2 months and have dropped more than $2 a gallon, or 53%.
President-elect Barack Obama selected New Mexico Gov. Bill Richardson for the position of secretary of Commerce in a news conference Wednesday morning.
"With his breadth and depth of experience in public life, Gov. Richardson is uniquely suited for this role as a leading economic diplomat for America," Obama said.
Richardson, one of the best-known Hispanics in the Democratic Party, also served as energy secretary during the Clinton administration, as well as ambassador to the United Nations.
Referencing the country’s deteriorating economic situation, Obama said that it is "time to not just address our immediate economic threats, but to start laying the groundwork for long-term economic prosperity cash advance loans."
"As governor of New Mexico, Bill showed how government can act as a partner to support our businesses, helping create 80,000 new jobs," Obama noted. "And under his leadership, New Mexico saw the lowest unemployment rate in decades.
Richardson, 61, is the third former presidential rival to join Obama’s team. Vice President-elect Joe Biden and Sen. Hillary Clinton, Obama’s pick for secretary of state, also competed for the Democratic presidential nomination.
Local United Auto Workers leaders from across the country will hold an emergency meeting in Detroit on Wednesday to discuss concessions the union could make to help auto companies get government loans.
UAW leaders called the meeting Monday night in an e-mail, obtained by The Associated Press, to local union presidents and bargaining chairmen.
Among the subjects to be discussed at the meeting will be the possibility of restructuring the union-administered health care fund so that the automakers can delay payments to the multibillion-dollar fund, according to a person familiar with the matter.
The union leaders will also discuss potentially eliminating the jobs bank, in which laid-off workers keep receiving most of their pay. The person spoke on condition of anonymity because the details of the talks haven’t been finalized.
Presidents from union locals for General Motors Corp., (GM, Fortune 500) Ford Motor Co. (F, Fortune 500) and Chrysler LLC will attend the meeting, according to the e-mail. A separate meeting for GM union officials will follow.
Members of the committee that negotiated contracts last year with GM, Chrysler and Ford also will attend.
Chief executives from all three companies and UAW President Ron Gettelfinger are traveling to Washington this week to present business plans to Congress as they seek to get $25 billion in federal loans to help them survive.
The CEOs will go before Congress on Tuesday, the same day major automakers are scheduled to report November U Free Credit Report and Score.S. sales. Analysts are expecting yet another month of dismal volumes due to the economic recession and the credit crisis.
GM, Ford and Chrysler would refinance their companies’ debt, cut executive pay, seek concessions from workers and find other ways of reviving their staggering companies.
Gettelfinger said Tuesday the plans the automakers are submitting to Congress don’t yet include union-approved cutbacks, but he said "we recognize that there may be additional sacrifices required."
"We have ongoing discussions with the companies about different issues. We’re working all the time to help save the companies money," he said on WJR-AM’s "Paul W. Smith Show" in Detroit.
U.S. automakers are struggling to stay afloat heading into next year under the weight of an economic meltdown, the worst auto sales in decades and a tight credit market. GM, Ford and Chrysler went through nearly $18 billion in cash reserves during the last quarter, and GM and Chrysler have said they could collapse in weeks.
Last month, chief executives from the Detroit Three failed to convince Congress they were worthy of the $25 billion in loans. House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., ordered them to outline major changes, including the elimination of lavish executive pay packages and assurances that taxpayers would be reimbursed for the loans.
Americans may be descending on the malls today to hunt for bargains. But this is still expected to be a blue Christmas for many retailers and a gloomy end to what’s turning out to be a dismal 2008.
Nonetheless, some consumer stocks are actually thriving this year. Not surprisingly, almost all of the retailers that are in the black through Black Friday are benefiting from the weak economy because they tend to focus on thrifty shoppers. (And who isn’t trying to be more frugal these days?)
Shares of Wal-Mart Stores (WMT, Fortune 500) have gained nearly 20% so far this year. That makes it not just the best-performing stock in the Dow in 2008 — it’s the only one of the Dow 30 that’s up this year.
The discount retailer is expected to post an 8% gain in sales and 10% increase in profits — incredibly impressive in this economic environment.
Big Lots (BIG, Fortune 500), a closeout retailer of bargain-priced merchandise, is also doing well as consumers pull back. The stock is up 10% this year and earnings per share are expected to increase 35%.
But the companies that are really taking off this year are the ones that offer consumers the most bang for their buck — literally. Shares of the dollar store discount chains have been among the best-performers in the market in 2008.
Dollar Tree (DLTR) has soared about 60% so far. Shares of Family Dollar Stores (FDO, Fortune 500) are up 50% while 99 Cents Only Stores (NDN) has gained more than 35%.
Are these stocks still worth buying though? That’s less certain.
On the one hand, many are predicting that the economic malaise will linger into the early part of 2009 easy fast payday loans. That means these companies are likely to rack up sales and profits increases that will outpace the rest of the retail industry.
Wal-Mart, for example, is expected to report an earnings per share increase of 8% in its next fiscal year. Analysts are forecasting a 10% jump in profits for Dollar Tree next year.
But investors are already anticipating this sluggishness to continue and have priced that into the stocks of many of these discounters. So several now actually trade at luxury-like valuations when compared to other retailers.
Wal-Mart, Family Dollar and Dollar Tree all trade at more than 16 times earnings estimates for this fiscal year, compared to an average price-to-earnings ratio of just below 13 for the retailing sector.
In addition, it’s important to remember that investors often do a pretty good job of predicting economic recoveries well before they happen. Even though the next few quarters look bleak, there are growing hopes that the worst of this downturn will be over by late 2009.
If that’s the case, money may start to move out of hot stocks like these discount retailers and back into other more hard-hit consumer stocks, as well as beaten down banks and tech companies, which could all do well once the economy improves.
So buyer beware. Cheap may be chic now. But the discount retailers are so in vogue on Wall Street that these stocks are no longer the "doorbuster" deals they used to be.
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