US stocks slid, dragging the Standard & Poor's 500 Index down 45 per cent from its peak, as slumping profits at carmakers and technology companies indicated the credit crisis has infected the broader economy.
Exxon Mobil Corp and Chevron Corp led declines in all 40 energy companies in the S&P 500 as oil tumbled to a 16-month low. General Motors Corp. slid 13 per cent after Toyota Motor Corp, the world's second-largest automaker, reported its first sales decline in seven years. Losses were worse in overseas markets, with Europe's benchmark index sinking 6.3 per cent and Asia's down 5.6 per cent.
“It’s a bear market on steroids,” David King, a money manager at Putnam Investments, who helps oversee about $137 billion, told Bloomberg Television. “It’s very accelerated by the pace of financial markets on Friday.”
The S&P 500 slid 26.96 points, or 3 per cent, to 881.15 at 12.11 pm in New York, a level it first attained in June 1997. The Dow Jones Industrial Average sank 263 points, or 3 per cent, to 8,428.25. The Nasdaq Composite Index declined 34.38, or 2.1 per cent, to 1,569.53. About six stocks fell for each that rose on the New York Stock Exchange. The global tumble in stocks sent the benchmark index for developed markets to the lowest level since June 2003.
$10 Trillion Month: More than $10 trillion has been erased from the market value of equities so far this month, accounting for about one- third of the total value wiped off stocks this year.
MSCI's index of developed and emerging stock markets plunged 48 per cent in 2008 and is heading for its worst year on record as credit- related losses topped $660 billion in the worst financial crisis since the Great Depression.
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US stock-index futures plunged by their daily limits in trading before the open of US exchanges, with contracts on the Dow average expiring in December dropping 550 points and S&P futures tumbling 60 points.
“It's a pathetic moral victory, but the fact that we're not down 1,000 is telling me the market's sensing value,” said John Lynch, the Charlotte, North Carolina-based chief market analyst at Evergreen Investments, which manages $245 billion.
The Chicago Board Options Exchange Volatility Index surged as much as 32 per cent to 89.53, the highest in its 18-year history. The UK’s FTSE 100 Index tumbled 5 per cent after the nation's economy shrank for the first time since 1992.
‘Forced Selling’: The S&P 500 has lost 6.4 this week and the Dow average has dropped about 5 per cent, while the Nasdaq Composite Index is down more than 8 per cent.
Some investors speculated that Friday's declines were being exacerbated by hedge funds facing margin calls, or demands to repay borrowed money used to buy shares whose value has dropped.
“This must be forced selling, probably hedge funds,” said Nick Sargen, chief officer at Fort Washington Investment Advisors, which oversees $30 billion in Cincinnati. “A rational investor, and I emphasise rational, wouldn't be selling now.”
Exxon, the biggest US oil company, declined $2.62 to $67.77. Chevron Corp, the second-largest, lost $4.06 to $62.71.
Crude oil lost 4.6 per cent to $64.69 a barrel, while metals and crops also retreated. An S&P GSCI index of 24 raw materials has dropped more than 30 per cent since September, poised for a record quarterly decline.
‘Throwing Everything Out’: “It's the spillover of the banking crisis into real economies around the world,” said Michael Mullaney, a Boston- based money manager at Fiduciary Trust Co, which oversees $10 billion. “Everything's going down hard. Diversification is not working right now, that's what it amounts to. We're throwing everything out.”
GM, the biggest US automaker, dropped 51 cents to $5.59 on Friday and Ford, the second-largest, declined to $1.91.
US auto sales this month may fall to their lowest rate in at least 25 years as tighter credit and falling home values cripple demand, according to Deutsche Bank AG.
GM reiterated on Friday that bankruptcy is “not an option” for the company. Speculation regarding GM's financial stability is unfounded, spokesman Tony Cervone said in an interview.
Toyota slid 6.4 per cent in Tokyo after it about 2.236 million vehicles worldwide in the three months ended September 30, down 4.3 per cent from 2.336 million a year earlier. GM will release its third-quarter sales figure on October 29.
Volvo AB, the world's second-largest maker of heavy trucks, cut its industry growth outlook for this year, and PSA Peugeot Citroen, Europe's second-biggest carmaker, reduced its full-year targets.
Wide Rout: All of the 10 main industry groups in the S&P 500 fell at least 1.9 per cent as only 47 of the index's companies advanced. The main benchmark for US stocks is trading at the lowest since April 2003.
Intel Corp fell as much as 7.9 per cent as Samsung Electronics Co, Asia's biggest maker of chips, had its worst profit drop in more than three years. Apple Inc, the maker of iPhones and iPods, dropped $2.80 to $95.43.
Earnings at S&P 500 companies that have reported third- quarter results so far dropped by an average of 23 per cent, trailing analysts' projections by 1.6 per cent, according to data compiled by Bloomberg.
Earnings Slump: S&P 500 profits declined from the year-earlier period in each of the past four quarters. For the fourth-quarter, analysts estimate a 19.2 per cent increase. For fiscal 2009, they project growth of 15.2 per cent, according to estimates gathered by Bloomberg.
General Electric Co, the economic bellwether whose products range from power-plant turbines to locomotives, dropped 6 per cent to $17.67. The company said it plans to use the Federal Reserve's short-term funding facility when it starts next week.
American International Group Inc. declined 14 per cent to $1.80. The insurer said it has used $90.3 billion of a US government credit line since it was bailed out last month, an amount that exceeds the size of the original loan meant to save the company.
National City Corp slumped 21 per cent to $2.17. PNC Financial Services Group Inc, Pennsylvania's largest bank, plans to buy National City, Ohio's largest bank, for about $5.2 billion in stock with funds from the US Treasury. PNC's offer of $2.23 a share is 19 per cent less than National City's closing price on Thrusday.
Fifth Third Bancorp, Ohio's second-biggest bank, slid 15 per cent to $9.66 after being downgraded to “sell” from “neutral” at Goldman Sachs Group Inc.
The UK’s FTSE 100 Index tumbled 5 per cent after the nation's economy shrank for the first time since 1992. South Korea's Kospi Index sank 11 per cent as the country's economy grew at the slowest pace in four years. Russia's Micex Stock Exchange suspended trading until next week.