By Renae Merle
Washington Post Staff Writer
Thursday, October 23, 2008
Stocks tumbled in another dismal day of trading yesterday as poor corporate earnings sapped investor confidence, despite oil prices reaching a new low for the year.
The corporate losses spanned several sectors, from drugmakers to banks and aircraft manufacturers, prompting selling that swept across industries. Every stock on the Dow Jones industrial average, an index of 30 blue chips, fell yesterday.
The Dow dropped as much as 692 points during another late-day sell-off before recovering some ground. It fell 5.69 percent, or 514.45 points, to close at 8519.21. That is the sixth-largest point drop in the Dow's history.
The Standard & Poor's 500-stock index, a broader measure watched by market professionals, had the largest drop, with more than 100 of its component companies scheduled to report earnings this week. It fell 6.10 percent, or 58.27, to close at 896.78. The tech-heavy Nasdaq fell 4.77 percent, or 80.93, to 1615.75.
Investors have grown increasingly worried that the financial crisis is eating into corporate profits as firms announce plans to lay off thousands of workers. But it is not just the gloomy earnings reports that have unnerved traders. Hopes for an economic rebound by the end of the year or even early 2009 have dwindled as companies lower their forecasts, analysts said.
That despair overshadows growing evidence that government efforts to thaw the credit markets and encourage banks to lend to each other may be taking hold.
"The market is trying to figure out the depth of a global recession as commodity prices continue to fall out of bed," said Peter Cardillo, chief market economist with New York-based Avalon Partners.
Wachovia, weighed down by bad mortgage debt, reported a $23.7 billion loss during its third quarter -- one of the largest quarterly losses in history for any company and the largest ever for a financial firm. Wachovia, which is being acquired by Wells Fargo, fell 6.24 percent, to $5.71 a share.
"We believe that it was prudent for Wachovia to put these losses behind them," said Howard Atkins, Wells Fargo's chief financial officer.
The economic downturn is being seen in the results of a wide array of firms.
Drugmaker Merck said yesterday that it would cut about 7,200 positions after reporting a 28 percent drop in profit during the third quarter. Chicago-based Boeing, an aircraft manufacturer and defense contractor, was hampered by a machinists' union strike, and earnings fell 38 percent. AT&T, the country's largest telecommunications firm, reported a 5.5 percent increase in profit but still missed analysts' expectations.
Merck was down 6.5 percent, to $28.01 a share, while Boeing closed down 7.5 percent, at $42.91. AT&T fell 7.6 percent, to $23.78.
Not even the maker of Huggies diapers and Kleenex could escape the economic squeeze. Kimberly-Clark reported a 9 percent drop in net income despite raising prices for some items. It lowered its earnings forecast for the year and its shares were down 7 percent, to close at $57.22.
"The unprecedented volatility in global commodity, currency and financial markets has resulted in a high level of uncertainty in the current business environment," Thomas J. Falk, the company's chief executive, said in a statement.
Commodities, including crops, grains and crude oil, have fallen to their lowest point since mid-2004, said Christopher Low, chief economist at FTN Financial. "In 3 1/2 months we have reversed four years of gains," he said.
That includes crude oil, which fell to its lowest point since June 2007, closing at $66.75 a barrel, down 5.8 percent for the day. Crude oil prices have been dampened by slumping fuel demand and by the dollar, which surged against the euro yesterday, diminishing the appeal of commodities.