Friday, October 19, 2007

That Sinking Feeling

US equity investors lost boatloads of money on Friday as weak corporate earnings reports, credit concerns, fears of recession and oil over $90 a barrel sent stocks on a stunning day-long decline.

Dow 13,522.02 -366.94; NASDAQ 2,725.16 -74.15; S&P 500 1,500.63 -39.45; NYSE Composite 9,920.27 -254.34

For the week, the Dow Jones Industrials lost 576 points and did not post a gain on any single day. The Dow is now on a five day losing streak and has closed lower in seven of the last eight sessions. Friday's loss was the third worst of the year for the Dow.

The NASDAQ and S&P 500 also closed decisively lower and the NYSE Composite broke below the 10,000 mark for the first time since September 26.

All 30 of the Dow components were down, a very rare occurrence. The biggest hit was taken by Caterpillar (CAT), which reported net income for the three months ended Sept. 30 of $927 million, or $1.40 a share, from $769 million, or $1.14 a share in the year-ago period. Analysts expected a third-quarter profit of $1.43 a share.

The company lowered its forecast for the remainder of 2007 and warned that 2008 would be "below potential" and that the US economy would be in or near recession next year. That sent the stock reeling, losing 4.26 to 73.40, a 5.5% decline for the day.

Financial stocks also took serious hits. Bank of America (BAC), Citigroup (C) and troubled mortgage originator Countrywide Financial (CFC) were among the loss leaders.

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As might be expected from the dreadful headline numbers, declining issues outpaced advancers by a better than 5-1 margin. New lows catapulted past new highs, 375-143.

After briefly topping $90, crude for November delivery backed off, finally closing down 87 cents to $88.60. Gold was lower, losing 30 cents to close at $768.40/ounce. Silver continued its mini-slump, dropping another 17 cents to $13.64. Despite the lackluster day, precious metals remain a top choice for investors looking for protection against any economic downturn and a hedge against inflation. Both a recession and inflation now appear to be almost certainties in the upcoming months.

After the disaster that this week was, investors probably aren't going to get much relief next week, as more corporate earnings reports continue to flow into the mix. Additionally, reports on September existing and new home sales come out on Wednesday and Thursday, respectively. Durable Goods Orders for September will also be reported on Thursday, October 25.

NYSE Volume 3,531,780,250
NASDAQ Volume 2,371,651,750

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