Stocks Fall on Gloomy Earnings Reports, Sale of Ford Shares

Sagging corporate profits weighed on investor confidence today, sending stocks down.

The sell-off wiped away half of yesterday's rally, which included a more than 400-point gain by the Dow Jones industrial average. It is not unusual for investors to lock in some profits after such a rally, but stocks were largely negative today, reflecting concerns about the degree to which the financial crisis is weighing on corporate balance sheets, analysts said.

The Dow fell 2.5 percent, or 231 points, to close at 9,033.66, while the broader Standard & Poor's 500-stock index fell 3 percent, or 30 points, to 955.05.

The Nasdaq took the biggest hit today, falling 4.4 percent, or 73 points, to close at 1,696.68. Texas Instruments, the semiconductor giant, reported a 26 percent drop in third-quarter net profits and said revenue would "decline substantially" during the fourth quarter. Its stock was down 6 percent today.

Sun Microsystems was down 17.5 percent today after it said it expects a drop in revenue and a profit loss during the first quarter of 2009. "Sun and its customers are seeing the impact of a slowing economy," Jonathan Schwartz, Sun's chief executive, said in a statement.

Also weighing on the market today was billionaire investor Kirk Kerkorian's announcement that he had sold 7.3 million of his shares in Ford and could sell the rest. In just the latest indication of the slump in the auto industry, Kerkorian's firm, Tracinda Corp., said in a Securities and Exchange Commission filing that, given economic conditions, it would focus on gambling and the energy sector.

Ford was down 6.9 percent today.

The Dow also was led down by a drop at Citigroup after a Goldman Sachs analyst added the firm to a "conviction sell list" today and said Citigroup would not return to profitability until the second half of 2009. Citigroup stock closed down 6 percent today.

"Citi continues to have some of the highest levels of exposure to risky asset" in the industry, William Tanona, the Goldman analyst, said in a report.

Instead, investors should buy Morgan Stanley, the report said. The company's stock rose 2 percent.

It is not unusual for stocks to slump after a rally as investors cash in profits. But the degree of the sell-off could be a telling indicator of the depth of investor optimism that the market is ready to rebound from the financial crisis.

Investors were cheered yesterday by Federal Reserve Chairman Ben S. Bernanke's support for another stimulus package and indications that government efforts to thaw the credit markets are making some headway.

A benchmark rate for loans between banks -- the London interbank offered rate, or Libor -- continued to ease today on three-month loans. It fell to 3.8 percent compared with 4 percent yesterday. That is still much higher than the 1.5 percent bank lending rate set by the Federal Reserve. In normal times, the two rates are closer to each other.

"I think it's a sign that perhaps we're seeing a glimmer of some sort of easing in credit crunch," said Bill Stone, said Philadelphia-based chief investment strategist for PNC Wealth Management. "It's still not normal would be, but it's headed in the right direction."

Federal regulators have announced several efforts to stem the financial crisis, from lowering interest rates to making direct cash injections into major banks. It expanded that effort today with the Federal Reserve announcing a new program to backstop money market mutual funds.

Investors have pulled money out of those mutual funds, which are normally viewed as nearly as safe as cash. But the funds have had trouble meeting investors' request to pull their money out because of problems in the debt markets. The Fed said this morning that it will lend up to $540 billion to new special entities that will stand ready to buy up that short-term debt from money market mutual funds.

Economists also continue to watch corporate earnings reports for evidence of how the financial crisis has affected companies' balance sheets.

DuPont, the chemical maker, said net income fell 30 percent during the third quarter to $367 million and lowered its earnings forecast for the year. The firm blamed, in part, weakening demand in North American and Western European markets. It was down 8 percent in trading by today's close.

US Bancorp, weighed down by troubled mortgage loans, fell by 3 percent today after reporting that third quarter net income plunged 47 percent to $576 million.

Regional banks also struggled through the third quarter. Cleveland-based National City reported a $729 million loss during the quarter, more than analysts expected, and said it will reduce its workforce by 4,000, or 14 percent, during the next three years. KeyCorp, also based in Cleveland, reported a $36 million third-quarter loss. Cincinnati-based Fifth Third Bancorp reported a net loss of $56 million.

"As our results indicate, we are not immune to disruptions in the capital markets and weakening economic conditions," Kevin T. Kabat, Fifth Third's chairman and president, said in a statement.

Despite these reports, all three banks were up by the close of today's trading.

The industrial sector has also been hit by the economic slowdown. Caterpillar, the farming and construction equipment maker, pointed to "recessionary" conditions in North America and "growing weakness" overseas as it reported that third-quarter profits fell 6 percent to $868 million. The company said it still expects to report revenues of more than $50 billion this year, but was less clear about next.

"The 2009 economic outlook is extremely uncertain at this time, with substantial turmoil in financial markets and unprecedented government intervention around the world," Jim Owens, Caterpillar's chairman and chief executive, said in a statement. "The world has experienced significant turbulence in financial markets, and we expect this will slow world economic growth over the next three or four quarters."

Caterpillar was down 5 percent by today's close.

The Nasdaq was dragged down today by downbeat reports from several technology companies.

Yahoo and Apple will report earnings after the markets close. They dropped 6 percent and 7 percent respectively today.

Crude oil prices fell 4 percent to less than $71 a barrel. After reaching a high of $147 a barrel in July, many analysts now believe crude oil prices could fall as low as $50 a barrel this year. The Organization of the Petroleum Exporting Countries, or OPEC, is expected to announce this week that it will cut oil production to stop further price declines.

The decline in crude oil prices has translated into lower prices at the pump for consumers, but had weighed down shares of energy firms. Exxon fell 4.65 percent today, while Chevron fell 4 percent.

Overseas markets were mixed. London's FTSE was down 1.2 percent, while the Dax in Germany fell 1 percent. In Japan, the Nikkei was up 3.3 percent.