By Renae Merle
Washington Post Staff Writer
Thursday, November 6, 2008
With the presidential election out of the way, U.S. stocks took a dive yesterday as investors' focus returned to the economic turmoil that has weighed down stocks.
The market fell in early trading as investors sold off shares to secure profits after Tuesday's rally, but the losses accelerated throughout the day as traders digested more poor economic data.
"Many people are relieved to have the election behind us, but unfortunately that leaves only the economy for us to focus on," said Matthew D. McCormick, portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel. "People are getting off their post-election high, and they realize the economic hangover will be with us for a while."
After a late-day sell-off, the Dow Jones industrial average closed down 5.05 percent, or 486.01 points, at 9139.27 -- its 12th-biggest point drop in history. It is also the largest swing -- in either direction -- for the Dow the day after a presidential election. Every stock on the index took a loss, with financial firms leading the way down.
The Standard & Poor's 500-stock index fell 5.27 percent, or 52.98 points, to close at 952.77. The tech-heavy Nasdaq composite index was down 5.53 percent, or 98.48 points, to close at 1681.64.
"We're still seeing a market that is assessing the length of the recession and the depth of the recession," said Peter I. Cardillo, chief market economist with New York-based Avalon Partners.
New data hardened sentiment that a recession could last into 2009 as the service sector exhibited new weakness. The Institute for Supply Management said its service sector index fell to 44.4 in October from 50.2 in September. That was a bigger drop than expected by analysts.
A much-anticipated government unemployment report is scheduled to be released tomorrow, but a separate study released yesterday already found that private employers cut 157,000 jobs in October on a seasonally adjusted basis. That includes the loss of 31,000 jobs in the service-providing sector, the first decline in that segment since November 2002, according to the ADP National Employment Report.
"Services industries are now in full contraction mode, mirroring the recent intensification of general recessionary pressures in the economy," Brian A. Bethune, chief U.S. financial economist for IHS Global Insight, said in a research note yesterday. "Services industries are navigating through the most dangerous phase of the business cycle, with overall output growth projected to decline sharply" during the last months of the year.
Investors also digested mixed earnings reports yesterday as corporate balance sheets are weighed down by economic woes.
GMAC Financial Services, which is partly owned by General Motors, reported a $2.52 billion third-quarter loss, compared with a loss of $1.6 billion during the same period last year.
The company blamed most of the losses on its troubled mortgage business but said its auto financial business was also under pressure. The company has asked for federal assistance, but the Bush administration has so far not said whether it will grant it.
"The economic and market conditions created an unrelenting environment for our business and the financial services sector overall," GMAC chief executive Alvaro G. de Molina said in a statement. "In this climate, our primary objective is to make prudent use of our resources and take the steps needed to address the reduced access to liquidity."
Time Warner reported better-than-expected third-quarter profits, beating analysts' expectations. But the media conglomerate lowered its earnings forecast for the year. Its stock fell 6.3 percent, to $10.15 a share.
Crude oil prices fell 7.4 percent, to $65.30 a barrel.