U.S. Stocks Drop, Dow Average Posts Worst 2-Day Loss Since '87

Nov. 6 (Bloomberg) -- U.S. stocks slid and the Dow Jones Industrial Average posted its worst two-day loss since 1987 after jobless claims jumped and the shrinking economy decimated earnings at companies from Blackstone Group Inc. to News Corp.

Exxon Mobil Corp. dropped 4.3 percent, leading energy companies to the biggest declines in the Standard & Poor's 500 Index, as oil slid to a 19-month low below $61 a barrel. News Corp. sank 16 percent after the media company controlled by Rupert Murdoch said ad sales decreased. Blackstone, the world's largest private-equity firm, lost 9.5 percent after posting the biggest quarterly loss in its 18 months as a public company.

``We're a long way from the end of the economic challenges,'' said Mike Morcos, who helps manage $1 billion at Old Second Wealth Management in Aurora, Illinois. ``Earnings next year are going to be significantly lower and estimates are going to continue to come down.''

The Standard & Poor's 500 Index fell 4.8 percent to 907.52 at 3:22 p.m. in New York. The Dow Jones Industrial Average retreated 411.86 points, or 4.5 percent, to 8,727.41, extending its two-day loss to almost 10 percent. The Russell 2000 Index of small U.S. companies declined 2.6 percent to 501.06. The MSCI World Index of 23 developed markets lost 5.8 percent to 925.71.

The two-day tumble wiped out more than half of the S&P 500's rebound from a five-year low on Oct. 27. An industry report showing an unexpected decline in sales at chain stores in October also weighed on stocks as 23 of 27 companies in the S&P 500 Retailing Index slumped.

Europe Slides

BP Plc led a 5.6 percent retreat in Europe's benchmark index even after the Bank of England unexpectedly cut its benchmark interest rate by 1.5 percentage points to 3 percent to contain damage from a recession. Switzerland's central bank and the European Central Bank reduced their main lending rates by 50 basis points.

The S&P 500 is down almost 38 percent this year, the steepest annual retreat since 1937. The benchmark for U.S. equities has plunged 41 percent since its record in October 2007 as the U.S. economy shrunk in two of the last four quarters.

``It's just been a steady, steady sell,'' said Alan Gayle, the Richmond, Virginia-based senior strategist at Ridgeworth Investments, which oversees about $70 billion. ``The pain and frustration and anxiety of these volatile moves from one day to the next has discouraged a lot of investors to move to the sidelines.''

The VIX, as the Chicago Board Options Exchange Volatility Index is known, climbed 16 percent to 63.24. The measure tracks the cost of using options as insurance against declines in the S&P 500.

About 481,000 workers filed initial jobless claims last week, the Labor Department said today in Washington, exceeding the 477,000 projected by economists surveyed by Bloomberg News. The number of people staying on benefit rolls was the most since February 1983.

A report tomorrow will probably show U.S. employers eliminated jobs in October for a 10th consecutive month, based on economists' estimates.

Earnings Watch

Earnings at companies in the S&P 500 that have reported third-quarter results fell 7.2 percent on average, Bloomberg data show. Analysts expect full-year profits to drop 7.7 percent, according to estimates compiled by Bloomberg.

S&P 500 energy companies lost 4.7 percent as a group, as oil declined for the third time this week. Crude for December delivery retreated 7 percent to $60.71 a barrel.

Exxon Mobil, the world's largest oil company, slipped $2.43 to $71.26, while Chevron Corp. slid 4.9 percent to $71.25.

Cisco declined 26 cents to $17.13 after earlier dipping as low as $16.67. Chief Executive Officer John Chambers said sales will drop as much as 10 percent in the second quarter because of the financial crisis. In August, Chambers predicted an advance of 8.5 percent from a year earlier.

Advanced Micro Devices Inc. tumbled 11 percent to $3.18. The second-largest maker of personal-computer processors plans to cut 500 jobs, about 3 percent of the workforce, as part of its effort to return to profitability.

Technology companies in the S&P 500 lost 4 percent collectively. Dell Inc., Intel Corp. and Hewlett-Packard Co. fell more than 4 percent.

`Macro Concerns'

Amazon.com Inc. slid 7.3 percent to $48.18. The largest Internet retailer was cut to ``hold'' from ``buy'' at Citigroup, which noted the shares' surge of as much as 36 percent since third-quarter results and ``heightened macro concerns'' including slower consumer spending.

Tyco Electronics Ltd. tumbled 10 percent to $17.03. Fiscal fourth-quarter profit fell 55 percent on restructuring costs and the company forecast a ``significant'' drop in sales and earnings this period.

News Corp.'s Class A shares tumbled $1.43 to $8.36. Fiscal 2009 profit will drop in the ``low to mid teens'' in percentage terms, the company said after previously forecasting a gain of 4 percent to 6 percent.

Financial stocks in the S&P 500 fell 5 percent as a group, dragged down by Bank of America Corp. and Wells Fargo & Co. The group is down 52 percent in 2008 as the slowing economy raises concern banks will be hit by more bad loans after the subprime mortgage market's collapse led to $690 billion in credit losses worldwide.

Blackstone's Loss

Blackstone Group LP tumbled 8.8 percent to $7.84. The world's largest private-equity firm posted the biggest quarterly loss in 18 months as a public company as the financial crisis eroded the value of the businesses and real estate it has acquired. Blackstone had been expected to break even, based on the average estimate of seven analysts in a Bloomberg survey.

Wells Fargo declined 9.3 percent to $28.74 after the biggest bank on the U.S. West Coast said it plans to sell stock to fund the purchase of Wachovia Corp. The bank also said losses from the acquisition will be less than previously expected.

The bank, which disclosed the share offering yesterday in a statement, had said it would raise as much as $20 billion to fund the deal. That was before the Treasury said it was buying $25 billion of Wells Fargo's preferred shares.

Big Lots Inc. plunged 24 percent to $17.67 for the steepest decline in the S&P 500. The largest U.S. seller of overstocked and discontinued items said third-quarter profit may be below its prediction.

Retail Slump

October same-store sales fell 0.9 percent at U.S. chain stores, the first drop in seven months, and declined 4.2 percent excluding Wal-Mart, the International Council of Shopping Centers said. Economists surveyed by Bloomberg had projected a 0.7 percent increase.

Excluding the effect of the shifting Easter holiday, it's the first decline since at least 2000, according to research firm Retail Metrics LLC.

Wal-Mart Stores Inc., the world's largest retailer, increased as much as 4.1 percent before surrendering its gain as the market extended its retreat. October sales climbed more than the company projected after consumers, battered by job losses and shrinking credit, bought discounted groceries and Halloween costumes.

Analysts are lowering fourth quarter and 2009 profit forecasts for U.S. companies as third-period results miss projections at the highest rate in almost 11 years.

Companies in the S&P 500 may see fourth-quarter earnings advance 15 percent, down from 42 percent projected at the end of August, according to a Bloomberg survey of analysts. Profits in 2009 may grow 13 percent, analysts say, compared with the 24 percent predicted two months ago. Yahoo! Inc. climbed 3.1 percent to $14.35. Chief Executive Officer Jerry Yang, coping with the cancellation of an advertising agreement with Google Inc., said at a conference in San Francisco that he's open-minded about forging other deals.

The London interbank offered rate, or Libor, for three-month loans in dollars dropped 12 basis points to 2.39 percent today, the lowest level since November 2004, according to the British Bankers' Association.

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