Stocks lose again

Hope for recovery stalls as prices take worst fall in a month

January 08, 2009|By Walter Hamilton | Walter Hamilton,Los Angeles Times

NEW YORK - The stock market's seven-week rally skidded to a halt yesterday.

Stocks endured their worst drubbing in a month, and crude oil plummeted the most in more than seven years, as a batch of gruesome unemployment and corporate-profit reports reminded investors about the dire state of the U.S. economy.

The Dow Jones industrial average fell 245.40 points, or 2.7 percent, to 8,769.70.

The Standard & Poor's 500 index dropped 28.05 points, or 3 percent, to 906.65. The Nasdaq composite index gave up 53.32 points, or 3.2 percent, to 1,599.06.

A private industry report estimated that employers chopped nearly 700,000 jobs last month, raising fears that the government's monthly unemployment report, due tomorrow, could be jarring.

Investors also were spooked by profit warnings from the likes of Time Warner Inc. and Intel Corp.

Time Warner said it will write down the value of its cable and other assets by $25 billion. Intel disclosed that its fourth-quarter revenue shrank 23 percent. And shares of Alcoa Inc. fell 10.2 percent after the company announced late Tuesday a major layoff and plans to stem production.

Since the market bottomed Nov. 20, investors had shrugged off a string of glum economic reports on the theory that the bad news already was reflected in stock prices and that the economy could bottom out by midyear.

But yesterday's reports indicated that layoffs are mounting more quickly than assumed while company earnings could be far worse than predicted.

The economic news "brought us back to the sobering reality of a very difficult economy," said David Dietze, president and chief investment strategist at Point View Financial Services in Summit, N.J.

"We knew things were going to get worse," he said. "But did we know they were going to get this bad this quickly and what's that going to do to consumer confidence?"

The sell-off reversed most of this year's early gains in the major averages. The Dow is now down fractionally for the year; the S&P is up 0.4 percent.

The S&P remains ahead 20.5 percent from its Nov. 20 low.

The ominous economic news contributed to the biggest drop in crude oil since 2001. Its price fell $5.73, or 11.8 percent, to $42.85 a barrel after a government report showed a larger-than-projected increase in reserves.

Some experts say stocks are entering a tough period over the next few weeks as a range of companies are expected to unveil profit warnings, thus reinforcing the notion that the economy hasn't shown any real signs of overcoming its malaise.

"The market was able to overlook bad news for some time," said Chris Johnson, chief executive of Johnson Research Group in Cincinnati. "With Intel and Alcoa more or less starting to lay the foundation for a confessional period for earnings, investors are now looking down the barrel of reality."

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