The Wall Street Journal-20080111-The Afternoon Report- Short Respite- Online edition
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The Afternoon Report: Short Respite; Online edition
Talk about brief honeymoons. Stocks headed lower today as investors turned negative on the Bank of America-Countrywide deal and a spate of mortgage-related bad news.
The Dow Jones industrials were over 150 points lower in midday trading at about 12,700, while the Nasdaq declined more than 1% and the S&P was down nearly nine points. The biggest drag on the Dow was component American Express, the shares of which were off some 10% in the wake of the company's profit warning issued yesterday after the close of trading. The credit-card company is taking a $440 million charge before tax in the fourth quarter to cover higher delinquencies and loan write-offs. The news was especially worrying for the market, as it indicated that economic difficulty may be spreading to more affluent customers. That worry was exacerbated this morning when high- end jewelry retailer Tiffany lowered its outlook for the fiscal year ending this month.
Countrywide Financial's shares dropped over 15% as Bank of America confirmed that it is buying the tottering mortgage giant in a $4 billion all-stock deal, while Bank of America stock initially tumbled before climbing into positive territory by midday. Investors went home yesterday welcoming the deal as an indication that there are companies ready to help troubled lenders. However, the reality of the situation set in this morning after a published report said Merrill Lynch, the nation's largest brokerage firm, is expected to report losses of $15 billion on soured mortgage investments. In other signs of mortgage- related troubles, CIT Group indicated it would post a fourth-quarter loss as it boosts loan-loss provisions by $300 million, and UBS, as expected, reached out to shareholders to win support for a planned capital increase in the wake of massive cuts on its subprime holdings. Merrill shares recovered by midday after an initial selloff this morning amid wider gains in the financial sector. Also, many analysts already had been predicting large write-downs for the brokerage firm.
Meanwhile, Treasury bonds were higher, with the 10-year yielding 3.85%. Oil slipped 60 cents to $93.11 a barrel amid concerns slowing growth will weigh on prices. The dollar bounced against both euro but fell versus the yen. European stocks fell, and Asian indexes ended the day lower.
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Retail Weakness Persists
Tiffany trimmed its fiscal-year outlook after reporting weak same- store sales growth in November and December. The weak U.S. holiday sales results break from a longstanding trend for upscale retailers. Elevated gasoline prices and weakness in the housing market hadn't affected the company's wealthy customers' spending habits, but Chief Executive Michael J. Kowalski indicated that may be changing. He noted "a recent pullback in U.S. spending likely reflected a more cautious attitude among customers about the near-term direction of the economy and related factors." Meanwhile, Best Buy's same-store sales rose 1.5% in December. The best-performing product group was entertainment software, including videogaming hardware and software. The worst performing was consumer electronics, which had a 3.1% decline. Sales drops for projection and tube televisions and MP3 devices more than offset gains by flat-panel TVs and GPS devices.
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Trade Deficit Swells on Record Oil
The trade deficit surged by 9.3% to $63.12 billion in November from October's revised $57.77 billion on record oil prices. That marked the biggest gap in 14 months even though exports rose and the volume of crude imports shrank. The U.S. bill for crude oil imports rose to $24.17 billion, from $22.92 billion in October, as the average price per barrel jumped to $79.65 from $72.49. However, the U.S. deficit with China narrowed to $23.95 billion, from October's $25.93 billion. Meanwhile, Beijing reported that China's global trade surplus surged 48% to a new record in 2007, an explosion that has boosted the nation's already booming economy to its fastest growth in a decade.
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Bush to Return to Israel This Year
As President Bush ended his first trip to Israel, the president said he would return to the Middle East in May to continue pushing the Israelis and Palestinians toward a peace treaty and celebrate Israel's 60th anniversary. "There's a good chance for peace and I want to help you," Mr. Bush told Israeli Prime Minister Ehud Olmert and Israeli President Shimon Peres as he boarded Air Force One. From Israel, Mr. Bush was headed to Kuwait, a tiny oil-rich nation his father fought a war over and one of only two invited guests to skip the Annapolis, Md., peace talks the president hosted.
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Jones Sentenced to Six Months in Jail
Disgraced Olympian Marion Jones was sentenced to six months in prison for lying to investigators about performance-enhancing drugs and a check-fraud scam. The judge sentenced Jones despite her plea that he not separate her from her children, "even for a short period of time." "I ask you to be as merciful as a human being can be," she said. The sentence completes a stunning fall for a woman who was once the most celebrated female athlete in the world. A runner and long jumper, she won three gold and two bronze medals at the 2000 Olympics in Sydney.
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Nigerian Rebels Step Up Oil Attacks
A prominent rebel group in Nigeria said it detonated explosives aboard an oil tanker in an important petroleum-exporting port in the country, ratcheting up the level of oil-targeted violence in the big producer. There was little information about the attack from Port Harcourt. But the Movement for the Emancipation of the Niger Delta, a prominent group responsible for a series of increasingly sophisticated attacks on oil infrastructure, said an allied group, working with insiders, detonated "a remote explosive device" that caused the tanker fire.
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Infosys Looks for Acquisitions
Indian technology giant Infosys Technologies is flush with cash and on the acquisition trail. But nailing down friendly deals is proving to be a tough task, according to chief executive and managing director S. Gopalakrishnan. "[It's] hard to get everything aligned and satisfied," Mr. Gopalakrishnan told The Wall Street Journal. "There are companies out there, the only thing is they may not want to be acquired or the valuation may be too high." Mr. Gopalakrishnan's comments came as Infosys reported a better-than-expected 25% increase in its fiscal third-quarter profit and raised its outlook.
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Giuliani May Be Strapped for Cash
About a dozen senior campaign staffers for Rudy Giuliani are forgoing their January paychecks, a sign of possible money trouble for the Republican presidential candidate and last year's national front- runner. "We have enough money, but we could always use more money," said Mike DuHaime, Giuliani's campaign manager and one of those who now is working for free. At the end of December, the campaign had $12.7 million cash on hand, $7 million of which could be used for the primary, Mr. DuHaime said. He disputed the notion of a cash-strapped operation and said Giuliani continues to bring in money; several fundraisers are scheduled this week in Florida.
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The Associated Press contributed to this report.
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Write to Phil Izzo at [email protected]
