Mid-Week Slump: Dow Dives 109 Points on Data, Financials

Wall Street was hit with a myriad of bad news today, sending the blue-chip index more than 100 points into negative territory. The market had to deal with a few reminders of the ailing economy, more worries about the turmoil in the financial sector and another huge spike in oil prices.

Today's Market

The Dow Jones Industrial Average slid 109.74 points, or 0.88% to 12422.86, the Standard & Poor’s 500 index declined 11.86 points, or 0.88% to 1341.13 and the Nasdaq Composite Index fell 16.69 points, or 0.71%, to 2324.36. The consumer-friendly Fox 50 lost 7.16 points, or 0.74%, to 963.62.

Today's losses put an end to a three-day win streak for the Nasdaq Composite and S&P 500 . Citigroup (C) and American Express (AXP) took the biggest hits on the blue-chip index. Those two stocks were closely followed by the other financial members of the Dow: Bank of America (BAC) and JPMorgan Chase (JPM).

The financial sector was hurt by writedown fears, concerns about the credit crisis claiming Clear Channel's (CCU) $19 billion buyout as a victim and calls by Treasury Secretary Henry Paulson to bring more regulatory oversight to commercial banks.

"I wouldn’t read too much into today’s action. After the rally we’ve had it’s not surprising we're taking a breather. A lot of the stocks that have rallied the most are getting hit today," said Richard Sparks, senior equities analyst at Schaeffer's Investment Research. Prior to yesterday's slightly lower close, the Dow had gained close to 450 points over a two-day span.

The market hit session lows after the Department of Energy reported crude inventories failed to increase last week -- sending oil prices to their highest close in a week at nearly $106 a barrel.

For a second consecutive day, Wall Street received disappointing economic data prior to the opening bell. The Commerce Department reported a surprising 1.7% decline in durable goods orders for last month -- well below expectations of a 0.7% rise.

Durable goods orders, which consist of products intended to last three years or longer, are considered a good indicator of economic activity because they both forecast factory activity and show consumer demand for these big-ticket items. Orders for machinery, which plunged 13.3% in February, had a big impact on today's numbers.

"It’s one more bit of proof that if we aren’t already in a recession, that’s certainly where we are headed. It’s undeniable at this point," said Sparks.

The market also received another status report on the housing slump, the third in as many days. The Commerce Department reported a 1.8% decline in new home sales during February to 590,000 units -- the lowest level of new home sales in 13 years. However, the numbers were somewhat better than the market had been bracing for and the Commerce Department upwardly revised January's new home sales by 13,000.

Earlier this week Wall Street was boosted by a surprise rebound for existing home sales due at least in part to sharp declines in median prices. Shares of homebuilders like KB Home (KBH) and Toll Brothers (TOL) fell on today's news, reflecting a lack of optimism that the end of the housing slump could be near.

Citigroup (C) tumbled 6% on a pair of a series of negative news items. The bank reached an agreement to settle litigation in the Enron bankruptcy case for $1.66 billion. Also, influential analyst Meredith Whitney of Oppenheimer slashed her predictions for 2008 earnings for Citi, Wachovia (WB) and Bank of America (BAC). Whitney cited more expected writedowns given housing market problems and more pressures on the U.S. consumers.

Citi took the brunt of the damage from the lowered forecasts, as Whitney lowered the bank's fiscal-year earnings by 120% to a 15 cent per share loss. According to Thomson Financial, analysts expect Citi to earn $1.94 per share.

Meanwhile, Deutsche Bank (DB), which was one of the few European investment banks that did not invest in subprime mortgage securities, warned today of writedowns. Citing "continuing difficult market conditions," Germany's largest bank said it may be forced to lower the value of assets including some loans. Shares of Deutsche Bank were down about 2% today.

Crude prices surged today, bolstered by somewhat bullish inventory data. The Department of Energy reported U.S. supplies were unchanged last week, compared to an expected build of 1.7 million barrels. Oil prices closed in New York at $105.90 a barrel -- a new one-week high -- up $4.68 on the day.

Shares of energy giants ExxonMobil (XOM) and Chevron (CVX) rose on the benefited from the oil price jump. On the other hand, airlines like Continental (CAL) and Northwest (NWA) fell sharply on worries the higher oil prices will translate to greater fuel costs for flights.

Tech stocks, which performed slightly better than the broader market today, could be under pressure tomorrow after software bellwether Oracle (ORCL) reported earnings following the closing bell. Oracle met Wall Street's adjusted-earnings expectation of 30 cents per share in the third quarter. However the company's revenue of $5.35 billion came up shy of Thomson Financial estimates, sending the stock sharply lower after the closing bell. Still, Oracle's third-quarter earnings represented a 21% increase from a year ago.

Corporate Movers

Motorola (MOT), the cell phone manufacturer, said it is splitting into two separate independent companies -- one for mobile devices and one all other businesses. The moves sent Motorola to a gain of 2.5% today. Motorola said it expects the company will split in about 2009 and has begun a search for a new mobile devices division chief executive. Motorola's mobile division has been lagging for years and has lacked a bread winner since the popular Razor cell phone.

Clear Channel's (CCU) $19 billion deal to go private is in danger due to a failure by private equity firms and banks to come to terms on a credit agreement, The Wall Street Journal reported yesterday. Shares of Clear Channel tumbled 17.5% on the report. Citing "people familiar with the matter," the Journal reported the private equity firms, Thomas H. Lee and Bain Capital, haven't been able to reach a final deal with the banks. The group of bank include Citi, Morgan Stanley (MS), Credit Suisse (CS), Deutsche Bank, Royal Bank of Scotland (RBS) and Wachovia (WB).

American Airlines (AMR) slid 10% after it voluntarily canceled 200 flights this morning to inspect its Boeing MD-80 planes. The airline confirmed aircraft maintenance on its MD-80 aircrafts. "A joint team of AA and FAA inspectors raised questions regarding an already accomplished directive concerning how a certain bundle of wires is secured to the MD-80 aircraft. We are re-inspecting the MD-80s to make sure the wiring is installed and secured exactly according to the directive," the airline said in a statement.

Ford (F) said it will sell its Jaguar and Land Rover brands to Indian auto manufacturer Tata Motors (TTM) for $2.3 billion in cash. Ford expects the deal to close by the end of next quarter and will contribute $600 million of the proceeds to Jaguar and Land Rover employees' pension plans.

Sprint (S) jumped 2% and Clearwire (CLWR) gained 3.5% on a Wall Street Journal report that the pair of companies could receive funding from three cable companies to build a joint wireless Internet network. The Journal reported Comcast (CMCSA), Time Warner (TWX) and privately-held Bright House Networks are in talks to contribute $1.7 billion to build a WiMax network. WiMax is a wireless Internet connection that is marketed as faster and broader than Wi-Fi. Also, the Journal reported Intel (INTC) and Google (GOOG) are considering funding the project.

Electronic Arts (ERTS) tumbled 1.5% today after Take-Two Interactive Software (TTWO) rejected EA's $2 billion buyout bid. Take-Two, which makes the highly profitable and equally controversial "Grand Theft Auto" video game series, turned down the offer, saying it is not enough. However, Take-Two said it is open to exploring alternatives, including a deal with EA, after the April 29 release of "Grand Theft Auto IV."

Thomson (TOC), the financial data company, reported this morning that its shareholders voted to approve the company's $15.8 billion acquisition of the news agency Reuters Group (RTRSY). U.S., European and Canadian regulators signed off on the deal earlier this year, which had been subject to anti-trust investigation. The combined company will be the largest player in financial news and information, with a 34% market share. Rival Bloomberg, which is privately held, has a 33% market share.

World Markets

European markets closed lower today. The Dow Jones Euro Stoxx 50, a index tracking the 50 largest companies of Europe, fell 21.14 points, or 0.58%, to 3611.45. The FTSE 100, London's benchmark index, dropped 28.70, or 0.50%, to 5660.40.

France's CAC 40 Index declined 15.32 points, or 0.33%, to 4676.68 and Germany's DAX slid 35.45, or 0.54%, to 6489.26.

Asian markets closed mixed overnight. Japan's Nikkei 225 Index fell 38.59 points, or 0.3%, to 12706.63. Hong Kong's Hang Seng Index gained 152.49, or 0.68%, to 22617.01.