| Market Summary |
Stocks fell deep into negative territory on Wednesday as investors processed a number of weak corporate reports and continued to worry about the economy. The Dow Jones Industrial Average shed over 500 points to close at 8,519.21. Broader stock indicators also declined. The Standard & Poor's 500 index fell 58.26 points to 896.79 and the Nasdaq composite index fell 80.93 points to 1,615.75. Recession fears appeared to be the main factor influencing the direction of the session. The financial sector struggled during the session after Wachovia Bank (WB: Charts, News, Offers) reported a surprise $24 billion quarterly loss. Boeing (BA: Charts, News, Offers) also reported a quarterly loss, which contributed to the Dow’s descent. Lending rates continued to improve despite the huge selloff. The 3-month Libor rate fell to 3.54% from 3.83% and the TED spread fell to 2.51% from 2.63% late Tuesday. In corporate news, Yahoo (YHOO: Charts, News, Offers) said that it will cut at least 1,500 jobs this year. The company also reported that profit declined 64% in the third quarter. H&R Block (HRB: Charts, News, Offers) announced that it would sell stock to institutional investors to raise $145 million. U.S. light crude oil for November delivery fell to a 16-month low. Oil prices fell $5.43 to $66.75 a barrel on the New York Mercantile Exchange. The dollar hit multiyear highs against several other major currencies.
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| Market News |
Drugmaker Merck & Co. (MRK: Charts, News, Offers) said Wednesday it will slash 7,200 jobs as part of a new restructuring program that comes as its third-quarter profit plunged 28 percent, due to a hefty restructuring charge and flat sales. The maker of allergy and asthma treatment Singulair and cervical cancer vaccine Gardasil said it will cut nearly 13 percent of its work force, including many executives, to lower overhead and become more competitive, in its second major restructuring in less than three years. "It's not a reaction to our performance in 2008 or the economy," Chief Executive Richard Clark said in an interview. "I think it's a competitive advantage" to make the company leaner and more flexible. Clark said 60 percent of the job cuts will come overseas -- a higher rate than in the December 2005 restructuring just wrapping up -- and cuts will affect workers in sales and marketing, manufacturing, administration and even research. He said spending on research, the company's future, won't be cut, but more will be shifted to basic-research collaborations at small companies and universities. (Source: Yahoo! Finance) Full Story
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A jump in global sales boosted McDonald's Corp.'s (MCD: Charts, News, Offers) third-quarter profit by 11 percent, the company said Wednesday, a bright spot among restaurant companies as strapped consumers balk at spending their cash on dining out. The nation's No. 1 hamburger chain cited the popularity of its sandwiches and drinks, but reiterated that it was discussing changes to its Dollar Menu because of the high cost of ingredients and expected to reach a decision soon. Consumers -- spooked by bank failures, declines in the stock market and talk of a prolonged recession -- have cut back on spending and focused on necessities. Given their desire to save cash, fast food sales have held up far better than those at pricier sit-down restaurants. McDonald's is "recession-resistant," Chief Executive Jim Skinner said on a conference call, adding that it is "operating from a position of strength." (Source: BusinessWeek) Full Story
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Wachovia Corp. (WB: Charts, News, Offers) on Wednesday reported a staggering $24 billion loss as it took a goodwill impairment charge of nearly $19 billion ahead of its acquisition by Wells Fargo & Co. The Charlotte, N.C.-based bank reported a loss after paying preferred dividends of $23.89 billion, or $11.18 per share, in the period ended Sept. 30, compared with earnings of $1.62 billion, or 85 cents per share, a year earlier. Excluding goodwill impairment of $18.7 billion and merger-related and restructuring expense of $414 million, the bank lost $4.76 billion, or $2.23 per share. Analysts polled by Thomson Reuters, on average, had expected earnings of 2 cents per share. Analyst estimates typically exclude one-time items. The bank said its acquisition by Wells Fargo, in an all-stock deal currently valued at about $14 billion, is on track to close in the fourth quarter. "Wachovia's third-quarter results were very much in line with our expectations," said Wells Fargo President and Chief Executive John Stumpf in a statement. "We're more encouraged than ever by what we've seen in their franchise, and we're pleased that Wachovia's team continues to focus on serving customers." (Source: Forbes.com) Full Story
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| Market Analysis |
During the first ten days of October the banking system teetered on the edge of collapse. Now capital injections appear to be saving the banks from failing. But the injections are not going to save the business sector from a slump. Prospects for business are dim. The boom is over, and the sweeping decline of house prices, which has eliminated many jobs in construction and real estate, won't be reversed. Things will get worse before they get better, too. Working down the inventory of homes built beyond the ability of people to afford their production costs will take years. Removing the overhang of toxic, default-ridden assets at the banks may take quite some time, too. Restoring lost confidence will take even longer. This sorry situation has raised hackles. On the left, politicians are promising stronger regulation--and more public spending. On the right, politicians are bracing for that increased regulation and spending if they lose the election. (Source: Forbes.com) Full Story
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If it makes him feel any better, Rick Wagoner is by a long shot not the CEO to have presided over the greatest destruction of shareholder wealth while retaining a decent reputation. The record keeper is Cisco's (CSCO: Charts, News, Offers) John Chambers, who lost nearly half a trillion dollars in market value in 2000-2001. Sadly, the comparison quickly runs out of relevance. GM (GM: Charts, News, Offers) was never raised to lofty heights by any bubble, but has been a distressed property even in the best of times. Now the company, facing the Detroit doomsday scenario, seems close to taking on the extra burden of private equity firm Cerberus Capital's disastrous stake in Chrysler. The talk is of synergies and cost-cutting, of tapping new lodes of cash to ride out the storm. Don't believe it. These negotiations are about one thing: creating a political last stand of American auto making that a Democratic Congress and president won't be able to resist bailing out. (Source: Wall Street Journal) Full Story
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Gold is for rich guys -- buying physical gold, that is. The metal's highest and best investment use is as insurance policy against a currency collapse. For that purpose, you need a lot of it, stored around the world. Owning 20 or 30 coins is nice but won't protect your standard of living in a world where dollars are dust. Gold isn't even a reliable hedge against inflation. It reached $850 an ounce in January 1980, a price not seen again until January 2008. During those intervening 28 years, gold plunged and reared but lost more than half of its purchasing power. For a 1980 investor to break even after inflation, gold would have to reach $2,200. It might, but how long did you plan to wait? (Source: Bloomberg) Full Story
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| On This Date |
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October 22, 1998: Oil company Conoco, spun off from DuPont, goes public in the largest IPO in U.S. history, raising $4.4 billion.
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One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute. -William Feather
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