U.S. Stocks Slide on Unexpected Drop in General Electric Profit

U.S. stocks tumbled the most in three weeks after General Electric Co. stunned investors by reporting a decline in profit and consumer confidence fell to the lowest level since the early days of Ronald Reagan's presidency.

GE, the world's biggest maker of power-plant turbines, jet engines and locomotives, dropped the most in 20 years after first-quarter earnings slumped 12 percent because of failed asset sales and losses at its finance businesses. The plunge triggered the worst retreat since 2001 for industrial shares as United Technologies Corp., 3M Co. and Honeywell International Inc. also slid. All 10 industry groups in the Standard & Poor's 500 Index decreased except for utilities as the benchmark for U.S. equities extended its biggest weekly drop in a month.

We are seeing the collateral damage to the economy, Bill Strazzullo, chief market strategist at financial advisory firm Bell Curve Trading, said in an interview with Bloomberg Television. Things are getting worse.

The S&P 500 sank 27.72 points, or 2 percent, to 1,332.83 and lost 2.7 in the week. The Dow average tumbled 256.56, or 2 percent, to 12,325.42. The Nasdaq Composite Index dropped 61.46, or 2.6 percent, to 2,290.24. More than nine stocks declined for every one that rose on the New York Stock Exchange. European shares reversed gains after GE's report. Asian markets, which closed before GE's results, rose for a second day.

Earnings Slump

GE's results capped the first week of an earnings season that is projected to mark the third straight quarter of declining profits. Alcoa Inc., the first company in the Dow to report results, posted earnings that trailed estimates on April 7 and Advanced Micro Devices Inc. said first-quarter sales fell short of forecasts. The next day United Parcel Service Inc. lowered its earnings estimate because of higher fuel prices and a weakening economy.

Stocks also retreated after the Reuters/University of Michigan preliminary index of confidence among U.S. consumers slumped to a 26-year low of 63.2 in April as the labor market continued to weaken and gasoline prices rose.

GE lost $4.70, or 13 percent, to $32.05. The company said profit from continuing operations dropped to $4.36 billion, or 44 cents a share, from $4.93 billion, or 48 cents, a year ago, trailing the average analyst estimate of 51 cents. GE's miss came without warning after it was forced to reduce the value of some securities in the last two weeks of March as capital markets seized, Chief Executive Officer Jeffrey Immelt said.

`Credibility Concerns'

Immelt cut the $2.42-a-share 2008 profit forecast, which he had called in the bag in December and had repeated as recently as March 13, to as little as $2.20 a share.

Goldman Sachs Group Inc. downgraded GE to neutral, saying the company's surprise profit decline raises credibility concerns.

GE's tumble wiped out almost $47 billion in value, more than the combined market capitalization of fellow Dow components Alcoa and General Motors Corp.

Industrial stocks including United Technologies fell after GE's report signaled the U.S. economy may be worsening. United Technologies, the maker of Otis elevators and Pratt & Whitney jet engines, slid $2.32, or 3.2 percent, to $69.53. Honeywell, the world's largest maker of airplane instruments, lost $1.81, or 3.1 percent, to $56.99. 3M, the maker of 50,000 products, slid $1.88 to $78.47.

The S&P 500 Industrials Index dropped 4.6 percent for the biggest decline among 10 industries in the S&P 500.

Reduced Profit Estimates

GE is indicative of what's going on in the world economy, Benjamin Pace, who helps oversee about $60 billion as chief investment officer at Deutsche Bank Private Wealth Management in New York, said in an interview with Bloomberg Television.

Analysts have reduced profit estimates for 14 straight weeks this year on concern the fallout from the subprime mortgage market's collapse has spread beyond financial companies. Earnings at companies in the S&P 500 are forecast to fall an average 12.3 percent in the first quarter and 3.8 percent in the second, according to estimates compiled by Bloomberg. Profits at companies outside the financial industry are estimated to have grown 5.8 percent.

Analysts this week forecast for the first time that European companies' earnings will shrink in 2008.

`Very Tough Month'

Financial stocks declined 1.8 percent, led by JPMorgan Chase & Co., the third-largest U.S. bank, and American International Group Inc., the largest insurer by assets. Erin Callan, chief financial officer of Lehman Brothers Holdings Inc., said the global credit market crisis worsened last month and recovery for the securities industry may take until next year.

March was a very, very tough month, Callan, 42, said in a Bloomberg Television interview in New York. I don't see what the real catalyst for change would be over the next several months. We've got to look out to 2009 for where we're going to change.

JPMorgan lost $1.33, or 3 percent, to $42.53. AIG dropped $1.51, or 3.3 percent, to $44.05.

Washington Mutual Inc., the largest U.S. savings and loan, slid 47 cents to $10.95 after Goldman analysts recommended selling the shares short. The company will probably lose $3.30 a share this year, Goldman analysts, including New York-based James Fotheringham, said in a note to investors. Goldman previously forecast a 2008 loss of $1 a share.

BlackRock Inc., the largest publicly traded money manager in the U.S., fell $12.89 to $207.50. The stock lost buy ratings from analysts at Goldman and Wachovia Corp. after the shares rose 39 percent in the past year.

Frontier Bankruptcy

Frontier Airlines Holdings Inc. plunged $1.09, or 69 percent, to 48 cents after the U.S. discount carrier that serves 70 destinations from Denver filed for bankruptcy protection, becoming the fourth U.S. airline to do so in less than a month. Frontier said it took the step after its main credit-card processor began withholding proceeds from ticket sales.

CIT Group Inc., the commercial finance company trying to escape a cash squeeze, fell for a fourth day, dropping 57 cents, or 4.6 percent, to $11.79 on concern that earnings may be worse than forecast. JPMorgan Chase & Co. analyst George Sacco lowered his 2008 profit estimate 56 percent yesterday to $1.95 a share, from $4.45, forecasting lower fee revenue and losses from student lending. CIT said on April 3 its unprofitable student-lending unit stopped making government-guaranteed loans.

Hershey Co. dropped $2.46, or 6.4 percent, to $35.89. The largest U.S. candy maker was cut to underperform from market perform by Sanford C. Bernstein & Co. analysts who reduced their annual earnings estimate to $1.81 a share from $1.91 on weaker sales growth.

Nvidia

Nvidia Corp. had the third-steepest drop in the S&P 500, declining $1.35, or 6.8 percent, to $18.53. Deutsche Bank analyst Arnab Chanda lowered the price target for Nvidia, the world's second-largest maker of computer-graphics chips, to $22 from $24 and said slowing demand for personal computers is likely to hurt the company.

About 1.3 billion shares traded on the NYSE, 24 percent below the three-month daily average.

The Chicago Board Options Exchange Volatility Index climbed to the highest this month, gaining 6.7 percent to 23.46. The so- called VIX, a gauge of how much investors are paying for insurance against stock-market losses, had dropped 32 percent from its peak this year through yesterday.

The Russell 2000 Index, a benchmark for companies with a median market value 95 percent smaller than those in the S&P 500, fell 2.7 percent to 688.16. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, dropped 2 percent to 13,455.24. Based on its retreat, the value of stocks decreased by $346 billion.

Treasuries rose, snapping a three-week slide in two-year notes, as the stock market's decline boosted demand for the fixed returns of government debt. Traders have stepped up bets this week that the Federal Reserve will cut its benchmark lending rate by as much as a half-percentage point at its April 30 meeting to bolster the economy.