Stocks decline sharply on worries about recovery
Stocks tumbled the most in three weeks after Citigroup Inc. sold stock at a discount, FedEx Corp.'s profit forecast trailed analyst estimates and jobless claims unexpectedly increased.
Citigroup, the last of the four largest banks to repay a taxpayer bailout, declined 7.3 percent. FedEx, the second-largest U.S. package-shipping company, fell 6.1 percent after saying its forecast reflects a "modest" economic recovery. Goldman Sachs Group Inc. and Morgan Stanley declined at least 2.5 percent after analyst Meredith Whitney lowered earnings estimates on concern clients are trading less.
The Standard & Poor's 500 Index slid 1.2 percent to 1,096.08. The Dow Jones Industrial Average dropped 132.86 points, or 1.3 percent, to 10,308.26. Both fell the most since Nov. 27. Stocks in Europe declined after Standard & Poor's cut its credit rating for Greece.
"Improvement in earnings in 2010 is going to depend upon actual revenue gains, which means you have to have sustainable economic recovery," said Jason Pride, director of investment strategy at Glenmede in Philadelphia, which manages $18 billion. "Employment is the most important determinant of sustainability of an economic recovery."
Stocks erased most of an early advance yesterday after the Federal Reserve repeated its pledge to keep interest rates "exceptionally low" for an "extended period," citing "a weak labor market, modest income growth, lower housing wealth, and tight credit." The S&P 500 closed at its highest level of the year on Dec. 14.
Benchmark indexes opened lower today after initial jobless claims rose by 7,000 to 480,000 in the week ended Dec. 12, Labor Department figures showed. The average estimate of economists surveyed by Bloomberg was for a decline to 465,000. An increase in claims the previous week was the first in six weeks.
Stocks remained lower even after gauges of the economic outlook and manufacturing in the Philadelphia area rose more than forecast. The Conference Board's index of leading indicators climbed 0.9 percent in November, its eighth straight gain, compared with a median forecast of 0.7 percent. The Philadelphia Fed's general economic index climbed to 20.4 in December, the highest since April 2005.
Citigroup sank 7.3 percent to $3.20, the lowest closing price since Aug. 3. The shares are down 19 percent this week. The lender sold 5.4 billion shares at $3.15 apiece, less than the $3.25 the government paid when it acquired a one-third stake in September. The Treasury Department, which had planned to sell as much as $5 billion of its stake in conjunction with the offering, delayed the sale for at least 90 days.
Bank of America Corp. and JPMorgan Chase & Co., the two largest U.S. banks by assets, fell at least 2.6 percent each.
Investors demanded a bigger discount from Citigroup than Bank of America Corp. or Wells Fargo & Co., which together raised more than $31 billion this month to exit the government's Troubled Asset Relief Program.