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U.S. Stocks Fall, Wiping Out 2007 Gain for S&P 500; Exxon Drops
2007-11-21 18:06 (New York)


By Eric Martin
Nov. 21 (Bloomberg) -- U.S. stocks fell, wiping out this
year's gain for the Standard & Poor's 500 Index, after concern
that losses from mortgage defaults will spread through the
economy pushed down shares of banks and commodities producers.
American Express Co. tumbled to the lowest in 14 months
after Morgan Stanley recommended investors sell shares of the
third-largest credit-card network. Exxon Mobil Corp., the biggest
U.S. oil company, dropped after oil retreated. Circuit City
Stores Inc., the second-largest consumer-electronics chain,
declined to a four-year low after JPMorgan said it may not find a
buyer to turn around its business until next year.
The S&P 500 lost 22.93, or 1.6 percent, to 1,416.77, leaving
it with a 0.1 percent loss on the year. The Dow Jones Industrial
Average declined 211.1, or 1.6 percent, to 12,799.04 as 29 of its
30 members retreated. The Nasdaq Composite Index dropped 34.66,
or 1.3 percent, to 2,562.15. Almost four stocks fell for every
one that rose on the New York Stock Exchange.
``It's a very panicky market,'' said John Kattar, who
oversees $2 billion as chief investment officer at Eastern
Investment Advisors in Boston. ``There's a growing feeling that
the problems are unknowable and unquantifiable, and that there's
no way of dealing with it except through the passage of time.''
Ten-year Treasury yields fell below 4 percent for the first
time in more than two years as investors sought the safety of
U.S. government debt. Benchmark stock indexes also declined in
Asia and Europe.

`Sharply Deteriorating'

American Express dropped $2.66, or 4.7 percent, to $54.34.
``Sharply deteriorating'' consumer credit quality may prove a
bigger issue for the company than other card issuers because its
lending portfolio has grown ``far and away faster than its
peers,'' analysts Kenneth Posner and Charles Murphy wrote in a
note to investors.
Exxon Mobil retreated 78 cents to $87.04. Crude oil fell
from a record after an Energy Department report showed that
inventories at the delivery point for the U.S. benchmark grade
increased. Crude oil for January delivery lost 74 cents to $97.29
a barrel. Futures climbed to $99.29 earlier, the highest intraday
price since trading began in 1983.

Circuit City, Office Depot

Circuit City shares plunged 32 cents, or 5.6 percent, to
$5.45. A ``turnaround likely requires deep pockets -- such as the
involvement of a strategic partner (or acquirer),'' wrote
JPMorgan analyst Stephen Chick, who cut the stock to ``neutral.''
``Such a scenario may wait itself out until after the second
half'' of 2008.
Office Depot Inc., the world's second-largest office
supplies retailer, lost 77 cents, or 4.4 percent, to $16.72.
The holiday sales season may be the grimmest for U.S. chain
stores in at least five years as reduced profit forecasts by J.C.
Penney Co., Starbucks Inc. and FedEx Corp. show the effects of a
slowing economy. The traditional kick-off to the holiday rush,
known as Black Friday because the season may determine whether
retailers are profitable, is in two days. U.S. exchanges are
closed tomorrow for the Thanksgiving holiday.
Freddie Mac declined 74 cents to $26. Goldman, Sachs & Co.
cut its price estimate on shares of the second-largest U.S.
mortgage-finance company to $24 from $73 and lowered its 2008
earnings estimate by 82 percent.
Freddie Mac might need to raise as much as $6 billion to
bolster its capital amid the worst housing slump in at least 16
years, according to analysts at Fox-Pitt Kelton. The government-
chartered company dropped 29 percent yesterday after reporting
its biggest quarterly loss and saying it may cut its dividend.
Freddie said it would seek more reserves in a ``large
transaction.''

'Credit Collapse'

``Everybody's focused on Fannie Mae and Freddie Mac,'' said
Wayne Wilbanks, who oversees $1.3 billion as chief investment
officer at Wilbanks Smith & Thomas Asset Management LLC in
Norfolk, Virginia. ``We're going through a good, old-fashioned
credit collapse.''
Countrywide Financial Corp., the biggest U.S. mortgage
lender, lost 86 cents to $9.42 and Citigroup Inc., the largest
U.S. bank by assets, declined 67 cents to $30.73 as financial and
mortgage companies resumed their week-long slide. Goldman Sachs
Group Inc., the world's biggest securities firm by market value,
fell $7.98 to $209.50.
Financial shares in the S&P 500 fell for a sixth straight
day, losing 2.2 percent as a group.
A gauge of stock-market volatility rose to the highest level
in a week. The Chicago Board Options Exchange Volatility Index,
or VIX, rose 7.9 percent to 26.84.
Freeport-McMoRan Copper & Gold Inc. lost $1.79 to $90.06
after Goldman Sachs removed shares of the world's largest
publicly traded copper producer from its ``conviction buy'' list.

Economy Watch

The Dow Jones Transportation Average declined for a sixth
day to the lowest level since September 2006 as the Dow
industrials dropped to the lowest since April. The simultaneous
lows signal the start of a bear market to investors who follow
``Dow Theory,'' which views the transportation and industrial
gauges as harbingers of economic trends.
The index of leading U.S. economic indicators fell more than
forecast in October after a plunge in building permits and an
increase in firings. The report added to concern that the economy
is slowing after the Federal Reserve cut its forecast for 2008
growth yesterday.
Treasury Secretary Henry Paulson said lenders should move
``aggressively'' to offer new mortgage terms as defaults
increase, according to the Wall Street Journal.
Former Federal Reserve Chairman Alan Greenspan said recent
signs that a collapse in credit tied to subprime-mortgage lending
was ending have proven wrong.

'Come to a Halt'

``The progress has come to a halt'' in recent weeks,
Greenspan said at a business forum in Toronto yesterday. ``The
reason is increasing recognition that it's going to take a long
while to get rid of those excess inventories of homes in the
U.S.''
Bear Stearns Cos., the manager of two hedge funds that
collapsed in July, fell $2.59 to $91.28. American International
Group Inc., the world's largest insurer, dropped $3.11, or 5.7
percent, to $51.33, the steepest decline in the Dow average.
Directors and top executives were sued yesterday by investors who
claimed they were deceived about each company's subprime-mortgage
investments.
AIG, which is based in New York, also has units that
originate, insure and invest in home loans.

Biggest Drop in S&P 500

Patterson Cos. led declines in the S&P 500, slumping $8.54,
or 23 percent, to $29.08. The distributor of dental, veterinary
and rehabilitation supplies reduced its full-year forecast,
saying it expects to earn as much as $1.72 a share. The average
estimate from analysts in a Bloomberg survey was $1.74.
ACA Capital Holdings Inc. dropped 25 cents, or 23 percent,
to 85 cents. The bond insurer under scrutiny by Standard & Poor's
may have its credit rating cut, forcing banks to take on $60
billion of collateralized debt obligations, JPMorgan Chase & Co.
analyst Andrew Wessel said.
Homebuilders dropped 5.5 percent, led by Pulte Homes Inc.,
the third-largest U.S. homebuilder by revenue, and Meritage Homes
Corp. Home prices fell in one third of U.S. cities last quarter
as stricter lending standards caused a 14 percent decline in
sales nationwide.
Prices dropped in 54 of 150 metropolitan areas in the third
quarter and the median sales price tumbled 2 percent nationwide,
the National Association of Realtors said. Home sales, including
single-family properties and condominiums, slid to 5.42 million
at an annualized pace from 6.29 million a year ago. Pulte fell
$1.35, or 13 percent, to $9.25. Meritage dropped 90 cents to
$14.20.

GM Gains

Stocks briefly pared their losses after GMAC LLC said it may
buy a non-U.S. mortgage firm and General Motors Corp. said it
isn't required to inject capital into the home and auto lender it
once owned.
GM gained for the first time in six days and was the only
member of the Dow average to rise today. Its shares added 10
cents to $26.39 after the largest U.S. automaker said it has ``no
further obligation'' to boost GMAC. The November 2006 agreement
to sell 51 percent of GMAC to a group led by Cerberus Capital
Management LP ended any need to fund GMAC beyond a $1 billion
infusion earlier this year, GM's executive director of investor
relations, Randy Arickx, said in an interview.
The MSCI World Index lost 1.8 percent, the most since Aug.
9. Europe's Dow Jones Stoxx 600 Index fell 2.6 percent to a 13-
month low.
The Russell 2000 Index, a benchmark for companies with a
median market value of $583 million, dropped 1.2 percent to
740.30. The Dow Jones Wilshire 5000 Index, the broadest measure
of U.S. shares, fell 1.5 percent to 14,288.29. Based on its
decline, the value of stocks decreased by $271 billion.

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