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Stocks tumble on global economic fears

The CBO warns of a US recession in the face of a 'fiscal cliff.' Eurozone members are asked to prepare for a Greek exit. Shareholders sue Facebook and Morgan Stanley. Home sales and prices rise.

By TheStreet Staff May 23, 2012 7:30AM

TheStreetImage: Wall Street sign (© Corbis/SuperStock)By Andrea Tse


Updated at 12:35 p.m. ET


U.S. stocks were trading at session lows midday Wednesday on ballooning fears of a Greek exit from the eurozone.


Adding to worries was the Congressional Budget Office's warning that the U.S. economy could fall into a recession if steep tax increases and scheduled government spending reductions were to go into effect January.


The Dow Jones Industrial Average ($INDU) was down by 158.6 points at 12,344. The S&P 500 ($INX) was down by 17.2 points at 1,299. The Nasdaq ($COMPX) was falling by 38.9 points to 2,800.

Among the Dow, all 30 companies were declining, led by Hewlett-Packard (HPQ), Microsoft (MSFT) and Intel (INTC).       

 

Hewlett-Packard was taking the biggest hit ahead of its quarterly report after the closing bell. The big miss and tepid guidance of rival Dell (DELL) after Tuesday's closing bell was raising concerns about the performance of HP, which is expected to announce a restructuring plan that may include the elimination of as many as 30,000 jobs. Analysts expect HP to report fiscal second-quarter earnings of 91 cents a share on revenue of $29.92 billion.

 

Dell shares were down nearly 16%, hitting a low of $12.49 earlier in the session, a level unseen in three years. Volume of nearly 50 million was more than three times the issue's trailing three-month daily average churn.


In the broader market, there were four losers for every winner on the New York Stock Exchange and three decliners for every advancer on the Nasdaq.  The sectors being hit hardest were basic materials, energy, conglomerates and capital goods.


“I think in the markets there’s a slow realization that the outlook for growth and stable growth is not as good as it was even a week ago,” said Brian Gendreau, market strategist with Cetera Financial.


Wall Street finished mixed Tuesday as concerns about Greece's potential exit from the eurozone resurfaced in the final hour of trading. Late in the day, former Prime Minister Lucas Papademos was quoted as saying the country is considering preparations for a potential exit from the single-currency bloc.


European leaders were set to meet Wednesday at an informal dinner in Brussels -- their 18th gathering there in the past two years -- to discuss ways to soften austerity measures that are causing political turmoil in Greece and other weaker European nations. They will also discuss other controversial policies, including the creation of eurozone bonds, which has been stiffly resisted by Germany.


Specific items for discussion on the agenda, according to a Societe Generale note, are a 10 billion-euro increase in capital for the European Investment Bank for infrastructure projects; making greater, proactive use of European Union structural funds to aid development in poorer countries; and introducing commonly backed "project bonds" to fund pan-European infrastructure projects.


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"It is this final proposal that is proving the most controversial, with France in particular pushing project bonds as a sort of Trojan horse that may potentially end up being a steppingstone on the way to common European government financing achieved through full Eurobonds," Societe Generale analysts said.


Reuters reported that eurozone leaders told members to prepare contingency plans in case Greece leaves the bloc. Germany's central bank called the potential departure "manageable."


London's FTSE was settled down 2.5%, and the DAX in Germany closed down 2.3%.


“I still think that Greece and Portugal will eventually exit the common currency by end of this year or early part of next,” said Dwight Johnson, chief economist at California Credit Union League. “Then we’ll be in the throws of how much Spanish debt to write off.”


Also Wednesday, Germany managed to sell 4.56 billion euros ($5.8 billion) in new two-year bonds with a zero-yield coupon and average yield of just 0.07%, highlighting the anxiety among investors about a Greek eurozone exit and their strengthened desire for haven assets.


The Hang Seng Index in Hong Kong settled down 1.3%, and Japan's Nikkei average closed off 2%.


The Congressional Budget Office warned that the U.S. economy could slip into a recession in the first half of 2013 as the nation heads towards a "fiscal cliff" in January that could suck more than $500 billion from the economy in 2013.


The benchmark 10-year Treasury was rising 10/32, lowering the yield to 1.737%. The greenback was rising 0.3%, according to the U.S. dollar index.


The Department of Commerce reported that new single-family home sales rose 3.3% to a seasonally adjusted 343,000-unit annual rate in April, from an upwardly-revised 332,000 in March. The April rate was better-than the 335,000 figure economists surveyed by Thomson Reuters were expecting.


The July crude oil contract was down $1.61 at $90.24 a barrel. June gold futures were down $39 to $1,537.60 an ounce.


In corporate news, Facebook (FB) and banks including Morgan Stanley (MS) were being sued by the social network's shareholders, Reuters reported. The plaintiffs said the defendants hid Facebook's weakened growth forecasts ahead of its $16 billion initial public offering, according to the report. Facebook shares were rising more than 3% after two straight days of declines.


Toll Bros. (TOL) posted second-quarter profit of 10 cents a share, a swing from a year-earlier loss of 12 cents. The latest quarter included a tax benefit of $1.2 million. Revenue rose to $373.7 million from $319.7 million. Analysts expected earnings of 3 cents a share on revenue of $381 million. 


PetSmart (PETM) was a standout gainer in Wednesday's trading after its above-consensus performance in the first quarter. The pet products retailer posted earnings of $94.7 million, or 85 cents a share, up from a profit of $70.9 million, or 61 cents a share, in the same period a year earlier, and well ahead of the average analysts' estimate of 73 cents a share.


SAP (SAP), the German IT services giant, said Tuesday it reached an agreement to buy Ariba (ARBA) for $4.3 billion. SAP's offer of $45 a share offer represents a 20% premium to Ariba's closing price on Monday. The deal is expected to close in the third quarter.

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359Comments
Reteplabel
May 23, 2012 8:44AM
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Good morning everyone!

Yes, Greece is not going away. The real worry should be is that once Greece leaves the Eurozone that Spain, Ireland, and Portugol leave as well. The result of this would be such a great strain on the international banking system that it will not be capable of functioning.

 

Watch the price of crude closely this week. We are nearing of my earlier prediction (April) of $90 a bbl and a free fall from that point to down around $75 a bbl.

We also need to ask why our good Socilaist leaders in Washington are predicting GDP growth of 3% for this year yet the Fed is hinting at QE-3. Why would we need QE if we will be growing the fastest we have over the past 4 years?

 

Dawn Lasky (Dawn K)
May 23, 2012 9:23AM
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Adding to worries was the Congressional Budget Office's warning that the U.S. economy could fall into a recession if steep tax increases and scheduled government spending reductions were to go into effect January.

Um, hate to disillusion the 'experts', but for a majority of this country, the recession never ended. Economists play with numbers better then a crooked bookie, but the reality is that most of us are living on 40%- 50% (IF we're lucky enough to have a job) of what we were making 4 years ago with necessary (gas, food, utilities, etc) bills increasing about 30%.

Love the people who really believe either candidate will help, but I'm in the growing population that honestly believes none of them have any interest in helping anyone but themselves.
next time up
May 23, 2012 8:17AM
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The Pros can paint it as they wish but from my perspective these money guys have the world financial system resting on a knife blade.  Do we want socialism and world hunger or do we enhance free enterprise and change the climate where folks have to stand on their own? Shall we let the New World Order consume itself and die off? Personally I just can't get my hands around the idea of giving what we don't have to people we don't know to live a lifestyle better than our poorest citizens.  My vote is the best I can do for the rest of the world is take care of myself!
MirageGuy
May 23, 2012 11:01AM
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Government spending does not create GROWTH, it destroys it...

Plain and simple!   This idea that governments can spend our way into prosperity is utter nonsense... But then again all of Obamanomics flies in the face of economic reality.  He truly is clueless about economics...
USA Joe
May 23, 2012 7:57AM
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All today's economic news from Europe sounds familiar, does it not?

I guess 'ol Ben and the Fed will step in and save the day and buy more Euros, again, with our tax money and look like they know what they are doing.

 

SHAME on all our elected officials!

92019Tony
May 23, 2012 10:52AM
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If we stopped foreign aid and stop giving social security to people that never even paid in we could pay off our national dept quick. Stop the madness and do not elect any incumbents.
IDK and ME
May 23, 2012 9:40AM
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We can manage our way out of this economic crisis. The decisions that must be made are tough, but it can be done. Obama has had the opportunity to lead America though this time. He would have been the greatest President in American history. But what did he do, he blamed Bush. Narcis bastard.
Someone
May 23, 2012 10:54AM
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Morgan Stranley is now being investigated for insider trading on the FB IPO, Biden blames the Tea party for the economic problems, wages are stagnant and haven't kept up with 8% real inflation AND we have a real U-6 unemployment rate of 19%.   The Federal Reserve will continue to bail out Wall Street and the Big banks since the fed is a private institution with all the main thieves sitting on the board.  One big good ol boy network

 

We currently have a 2% growth rate and if the tax cuts are allowed to expire it will saddle the average taxpayer with an additional 4% in taxes and will reduce spending to the point we will have -2% growth in an economy driven by 70% personal consumption.  meanwhile we are guilty of re-electing the same idiots to represent us in Congress and fight among ourselves over party politics.  If WE as US citizens don't wake up and kick the whole damned bunch out and make it clear to the next bunch that they work for us this country is going to end up just lie a third world country.   We need to elect folks that will end the fedral reserve, get a balanced budget amendment in place, reduce taxes and reduce spending.  Fat chance with any of that in this "Me" society.

Someone (1161-3024)
May 23, 2012 9:23AM
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Also,

"In other domestic news, the Congressional Budget Office warned that the U.S. economy could slip into a recession in the first half of 2013 as the nation heads towards a "fiscal cliff" in January that could suck more than $500 billion from the economy in 2013."

In other words, if Barack "Jimmy Carter" Obama is re-elected, the US economy will most certainly slip into a recession as the Democrats pull the car out of the ditch and speed directly over the cliff Thelma and Louise style!

whyarewehere
May 23, 2012 11:18AM
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Slow down????? I wasn't aware that we sped up.
A Sharp
May 23, 2012 9:12AM
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Good Morning! Here we go for another round of the 'May sale off'. Very disappointing news coming out of Dell corp. and the facebook fiasco is just starting to heat up.

 

And then again, there is the EU ! All I can say is get out and distance yourself (your money) from any and all Euro related investments- start investing locally, in your own community, state, and America. Europeans (Greeks, Spaniards, Italians & Irish) are already pulling out their deposits and clamoring for safe havens in France & Germany.

 

Next time hit it right on the head: If you want to be able to save the world, you have to take care of yourself (your community) FIRST!

IDK and ME
May 23, 2012 9:17AM
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Socialism is the end of a civilization, not it's beginning. The end of socialism is bankruptcy!!! America itself is so far in debt to socialism that it is bankrupt and must re invent itself!!
raymagnumx
May 23, 2012 9:39AM
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The problem with our so called leaders in Washington is they are not held accountable for the spending they are doing.  They spend and give out more money than they are taking in....this is a recipe for disaster.  If Government ran the budget like most people run their house & family expenses & learn how to live within the means they would at the very least break even.  My suggestion would be to start rounding up all the millions of illegal aliens that are here sucking us dry  & cut off monetary aid to all these foreign countries we support & by the way most of these countries hate us except for the money we throw at them.  I bet with just these two thoughts the USA would probably show a profit!!!
George 1951
May 23, 2012 10:50AM
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Sooner or later the bubble will burst. High gas prices will kill the economy over time.
next time up
May 23, 2012 9:08AM
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Should we as a nation impose our values on others or let them derive their own.  Is it really of any benefit to America whether a citizen goes into their field and  picks fruit or vegtables and either sells, trades or barters with their neighbors, or goes to the local governement office and gets a voucher for free food.  Ever read the sign "please don't feed the animals"  the reason is we want the animals to  fend for themselves as nature would have it.  Isn't Americas meddling in others lifestyles in some way dysfunctional?  And what is our benefit?   They won't kill us?  Every Central American country you visit is gung ho on Capitalism.  Somone is always trying to sell you something.  Lets let these folks have at it.  They know what is best for them and how to get it. Only in America is begging accepted as a worthwhile endeaver.  Folks it is a mentality thing. Let people assume their own responsibility and get out of their way!
Seurat61
May 23, 2012 10:18AM
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Of course it's a slowdown.  The middle class is decimated and the rich don't buy hundreds of thousands of cars to stimulate the economy.  It's pretty simple.  If there isn't a middle class, there isn't an economy.
Pompey Mountain
May 23, 2012 9:34AM
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What most don't understand is the interconnection between all the Industrial Worlds Central Banks. Yes now when Europe sneezes we catch a cold! It did not come out until 3 years after the fact about the Feds 3.7 Trillion dollar next to no interest loan to Wall Street. .0003% or some rediculous low figure like that. They still would not free up money for lending even after the Tax Payer Bailout but they take free money from the Fed.

I wonder how long it will take before it comes out how much the Fed gave to Euopean Banks at little to no interest, it will be on par with what they gave Wall Street. When the Fed says they can't do anything about the next bubble busting they are telling the truth. The Feds meddling and coddling international banks has put the whole economic system in jeapordy!

 

Socialism bailing out capitalism has been a complete failure, they should have let the weak and incompetent fail as a true capitalist would have. All we they have created now is a bunch of sick and weak international banks and govenment treasuries. They should have come to the conclusion they could not influence a system that has no rules or quidelines anymore before they pumped trillions into the corrupt system!

Stephenga
May 23, 2012 10:28AM
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If we can ever get the people out of office, who don't think folks should work for what they get.  We got a governemnt that is destroying our country, by creating socialism.  I don't care if you are a republican, democrat, tea party, or what ever.  You politicians are crooks and abuse us citizens who elect you.  Look at what we have as president.  What a discrace to the world.  I BOLD FACE LIER.
A Patton fan
May 23, 2012 10:38AM
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Fall into recession??? We have never got out of one.  And oh yeah, a cut in government spending will send the economy down the tube??? Just where the hell does the government get its money to spend???  It simply takes money in the form of taxes and spends it in the most inefficient way possible.  When it runs out of money to spend it raises taxes (never cut costs).  Don't you wish you could run a business this way.  Well, let's see now, we are spending more than we are taking in, so lets just increase prices to cover the difference.  Our customers will understand and gladly pay more for our product. No, a successful business makes a profit.  I know our liberal contingent views this as obscene, but if a business doesn't make a profit it goes out of business, much like the has been country of Greece.   People wake up, the economic engine isn't the federal government.
next time up
May 23, 2012 9:24AM
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This Facebook story is the best story yet of how political the American business climate has become.  Having been through this so many times here is how it will go.  We will get  mouthspeaks talk of how unfair this IPO became and challenge the folks integrity and blah blah blah.  Then if the political climate becomes really hot there may be a class action suit. If there is any kind of settlement the lawyers will keep 98% of anything and after service fees the harmed may get a 1% settlement. Don't believe these are the 1%ers everyone is talking about. Don't look for any Justice from a group that gives the politicians as much money as these folks do.  Remember the number one profession for lawmakers is lawyer and no surprise they take care of their own!
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