The Wall Street Journal-20080112-American Express Helps Sink Shares- Cardholder Difficulties Push Stock Down 10-- McDonald-s Takes Hit
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A 10% drop in American Express shares led the Dow Jones Industrial Average lower in Friday's market rout.
Indications that AmEx cardholders are reining in spending and struggling to pay bills -- and that even McDonald's customers may be tightening their belts -- were ominous signs for the consumer-driven economy.
Bank of America rode to the rescue of Countrywide Financial, but anticipation of more Merrill Lynch write-downs proved banks have yet to put the mortgage crunch behind them. The Dow industrials fell by more than 300 points at one stage before being down 246.79 points in 4 p.m. composite trading.
"You're getting evidence that there is a spillover from what is now going on two years of a housing recession. It's unavoidable and irreversible," said Joseph Battipaglia, chief investment strategist with the private-client group at Stifel Nicolaus.
After the bell Thursday, American Express said cardholder spending was slowing even as delinquencies were rising. AmEx shares fell $4.92, or 10%, to $44 after touching a 52-week low of $42.90 earlier Friday. AmEx's report followed a similar warning about delinquencies from credit-card company Capital One Financial. Among other credit-card providers, MasterCard fell 16.82, or 8.6%, to 179.17, and Discover Financial Services shed 53 cents, or 3.7%, to 13.73.
Store by store and restaurant by restaurant, the tallies from holiday sales indicate a slowdown in purchases of discretionary items. McDonald's, mostly passed over in the selling of consumer stocks and the Dow in recent weeks, fell 3.85, or 6.6%, to 54.32.
Barnes & Noble, which plunged 6.58, or 19%, on Thursday after the bookstore chain cut its fourth-quarter earnings expectation because music sales were weak, fell 15 cents Friday to 27.76.
Tiffany fell 4.52, or 11%, to 35.80 after the jewelry seller said U.S. same-stores sales, or sales in stores open a year or more, declined in the two-month holiday period.
Best Buy fell 2.37, or 5.1%, to 44.20 after the consumer-electronics store posted lackluster December same-store-sales growth.
Countrywide shed 1.42, or 18%, to 6.33 as Bank of America agreed to buy the home lender. The shares had traded as high as 45.26 in January 2007.
Bank of America fell 80 cents, or 2%, to 38.50. Moody's Investors Service was apprehensive about the Countrywide deal, placing some of the bank's credit ratings under review for a possible downgrade.
Still, a glimmer of hope showed up in the stocks of two major banks reporting next week: Merrill Lynch rose 2.66, or 5.1%, to 54.69. The New York Times reported the brokerage is likely to take $15 billion in losses from mortgage investments -- more than double its prior estimate. Investors hope that could cleanse the balance sheet of credit-crunch issues. Citigroup, which reports earnings Tuesday, led the only four gainers on the Dow, rising 45 cents, or 1.6%, to 28.56.
Among other financials, Washington Mutual rose 53 cents, or 3.7%, to 14.69 after CNBC reported that J.P. Morgan Chase was in "very preliminary" talks with the thrift, with an eye to a deal. MBIA rose 2.48, or 18%, to 16.59 after the debt guarantor saw a $1 billion offering of its own bonds price with a 14% repayment rate.
Delta Air Lines fell 50 cents, or 3.1%, to 15.48 but rose 16% on the week after a report it will hold merger talks with Northwest Airlines and UAL.
