Jan. 9 (Bloomberg) -- U.S. stocks declined, erasing an early rally in the futures market, on concern an increase in the unemployment rate signals the global recession is worsening.
Alcoa Inc., International Business Machines Corp. and Home Depot Inc. dropped more than 2 percent after employers cut 524,000 positions in December, capping the worst year for firings since 1945. CVS Caremark Corp., the second-biggest drugstore chain, slid 11 percent after forecasting 2009 profit that trails analysts’ estimates.
The Standard & Poor’s 500 Index rallied 21 percent since plunging to an 11-year low on Nov. 20 as investors speculated the worst of the recession is over. Stocks erased gains and slid today on concern escalating unemployment will squelch consumer demand after retailers reported worse-than-expected holiday sales.
“You’ve got an incredible strain being put on the consumer in a pretty direct way,” said Michael Mullaney, a Boston-based money manager at Fiduciary Trust Co., which oversees $9.5 billion. “You’re in a recession and earnings are still going down. Traders aren’t going to want to hold positions over the weekend.”
The S&P 500 lost 1.6 percent to 895.64 at 10:10 a.m. in New York. The Dow Jones Industrial Average fell 107.2 points, or 1.2 percent, to 8,635.26. The Russell 2000 Index of small U.S. companies retreated 2.4 percent.
Weekly Tumble
All 10 S&P 500 industries slumped. The index is headed for a 3.7 percent drop this week, the most since it slid to an 11- year low on Nov. 20. S&P 500 energy stocks lost 1.8 percent as a group, as oil declined for a fourth day.
Schlumberger Ltd., Hess Corp. and BJ Services Co. retreated more than 3 percent. Crude slumped 3.8 percent to $40.11 on the New York Mercantile Exchange and has tumbled 14 percent this week.
Coach Inc. slid 11 percent to $18.57 for the steepest drop since Oct. 15. The largest U.S. maker of luxury leather handbags lowered its second-quarter profit forecast because of “depressed” store traffic and discounts.
KB Home sank 12 percent to $12.86. The housing market and economy this year will “remain difficult or possibly worsen as the timing of any meaningful recovery for the homebuilding industry remains uncertain,” predicted Chief Executive Officer Jeffrey Mezger after the fourth-largest U.S. homebuilder reported a narrower fourth-quarter loss.
Apollo Group Inc. jumped 12 percent to $86.13, the most since Oct. 29. The owner of the for-profit University of Phoenix said it had first quarter earnings of $1.12 a share, higher than the 97 cents analysts expected. The company also announced degreed enrollment was up 18 percent.
Earnings Slump
Earnings at S&P 500 companies have fallen for five straight quarters, matching the longest streaks of declines on record, and the slump is forecast to continue. According to estimates compiled by Bloomberg, profits probably decreased 12 percent last quarter and will drop 11 percent in the first quarter and 6.2 percent in the following three months before rebounding in the second half of the year.
President-elect Barack Obama warned in a speech in Fairfax, Virginia, yesterday that the U.S. risks sinking deeper into an economic crisis without an infusion of government spending and urged Congress to act quickly on his $775 billion stimulus package.
Concern that global stock losses will deepen remains elevated even after falling from record levels in October and November. The Chicago Board of Option Exchange Volatility Index yesterday fell 1.9 percent to 42.56 after climbing 13 percent the previous day. The benchmark index for U.S. stock options had lost more than half of its value since Nov. 20 as stocks rose.
The difference between what the U.S. government and banks pay to borrow for three months, the so-called TED Spread, is still about three times higher than before credit markets started freezing in August 2007, according to data compiled by Bloomberg.
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