Auto Downgrades Hit Stocks
Stocks were mixed Thursday as General Motors and Ford Motor had their credit ratings cut to junk, cooling some of the enthusiasm sparked by Kirk Kerkorian’s disclosure a day earlier that he was building a stake in GM.
Advancing issues barely outnumbered decliners on the New York Stock Exchange, but the Dow Jones industrial average and other major indexes were down as Standard & Poor’s lowered the automakers’ debt ratings.
“The market shouldn’t be dropping this much just because of two companies in one sector. Everyone knew Ford and GM were hurting, no matter what Kerkorian did yesterday,” said Brian Pears, head equity trader at Victory Capital Management in Cleveland.
“It shows the skittishness of this market. Any feelings of bullishness we may have had are very tentative still,” Pears said.
The Dow fell 44.26 points, or 0.4%, to 10,340.38, ending a four-day winning streak. Much of the loss could be attributed to GM’s falling stock price.
Broader stock indicators were narrowly lower. The Standard & Poor’s 500 index was down 3.02 points, or 0.3%, at 1,172.63, and the Nasdaq composite index lost 0.43 point, or 0.02%, to 1,961.80.
The Russell 2000 index of smaller companies was up 0.42 point, or 0.1%, at 595.64.
Crude oil futures moved higher after an industry consulting firm issued a report that projected higher energy prices. A barrel of light crude settled at $50.83, up 70 cents, on the New York Mercantile Exchange.
The Treasury bond market got a boost as the automakers’ debt downgrades sent investors looking for safer government issues. The yield on the 10-year T-note fell to 4.16%, from 4.19% Wednesday. Bond yields fall as their prices rise.
The dollar was lower against most major currencies, while gold prices rose.
Before the automakers’ downgrades, stocks traded narrowly higher as investors marked time ahead of today’s job creation report from the Labor Department. The market had been up for four straight sessions, and some analysts had started talking about sustained improvement in the markets. However, the market’s mood proved too tentative to keep the rally going.
“People are still pessimistic,” said Scott Wren, equity strategist for A.G. Edwards & Sons. “I think we saw the bulk of the panic selling a few weeks ago, but while the market is stabilized, we’re still getting mixed news.”
Wall Street had welcomed a Labor Department report showing a 2.6% annualized hike in worker productivity in the first quarter, the best increase in nine months. The report also noted that labor costs, while climbing, rose less than productivity -- which means companies are getting more out of their workers without undue costs.
In other market highlights:
* Retailers’ sales reports showed gains at traditional department stores and wholesale clubs, but slower growth at big discount chains -- a sign that lower-income Americans might be spending less because of higher gasoline prices.
Wal-Mart Stores rose 12 cents to $48.57 and Target gained $1 to $47.28, although their sales were below Wall Street expectations. But Family Dollar Stores plunged $2.54, or 9.3%, to $24.65, the second-steepest decline in the S&P; 500, on a disappointing profit outlook. Larger rival Dollar Tree Stores tumbled $1.75 to $23.39 after first-quarter earnings came in below expectations.
By comparison, better-than-expected sales figures helped boost Nordstrom by $2.19 to $53.89 and Federated Department Stores, up $2.20 to $62.37. J.C. Penney added 37 cents to $48.12.
* The bad news for Ford and GM had an immediate effect on the markets and sent the automakers’ shares tumbling. GM dropped $1.94 to $30.86 while Ford shed 46 cents to $9.70.
* Merck dropped 18 cents to $34.75 after it said Chairman and Chief Executive Raymond Gilmartin would be replaced as CEO by Richard Clark, president of Merck’s manufacturing division. A new chairman has not been named. Gilmartin was criticized for his handling of Vioxx, which was pulled from the market last year because of health risks.
* Energy shares rallied 0.9% as a group, reflecting higher oil prices. Exxon Mobil added 57 cents to $57.80 and Valero Energy gained 52 cents to $67.12.
* IBM was down $1.58 to $75.50 a day after announcing a restructuring that would result in as many as 30,000 lost jobs, mostly in Europe.
* Gillette fell 43 cents to $52.42 after the consumer products manufacturer said earnings rose 19% in the first quarter and beat Wall Street forecasts by 2 cents a share. The company said earnings growth was slowed by a factory closure and costs associated with its planned merger with Procter & Gamble, which lost 36 cents to $54.78.
