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.

May 23, 2012 12:19PM
ABS:  Actually it was more like "I worked with Leon Panetta and I gave the order to go ahead with the strike.  We should thank the tireless work of the intelligence community and the men who carried out this operation who exemplify the professionalism, patriotism, and unparalleled courage evident in our forces."  Yes.. I'm paraphrasing the "thank you" section of the bin laden is dead speech.

Would you feel better if he did it under a "Mission Accomplished" banner?

Not quite sure how to parallel upping the terror warning level right after the Dem convention in 2004, which Tom Ridge said there was no reason for.  Talk about politicizing a national tragedy and out security...

May 23, 2012 12:16PM
If you cut the spending then you won't have to increase taxes!  The problem is in today's society we have to many freeloaders with their  hands out looking for a free government ride!
May 23, 2012 12:16PM
Mirage, your lack of economic cognizance still amazes me, any spending whether government or private sectors creates jobs and growth. All over our nation whole cities thrive because they are next to a navel bases, prisons, state colleges, national laboratory etc. When dollars are circulated the economy is stimulated, jobs are created and growth occurs. When dollars are extracted by the super wealthy and hoarded or spent over seas investing in Chinese industries our economy suffers, by having a progressive tax code our government is able to keep American dollars circulating here rather than in China, creating growth and jobs here. This is why when Bush cut taxes American jobs went over seas, because that's where the dollars went. Like they say if you want the answers, just follow the money.
May 23, 2012 12:14PM

The Market should never have been allowed to be such a large part of the U.S. economy as it is run today. Your Barber and Bartender, grocer and your kids teacher should be invested in more secure retirements and college funds for their kids. The market is ravenous when left unchecked, the people in 29 learned that and built their lives around safer investments and retirement instruments. The local commercial banks were separated from Wall Street by regulation after 29 and they had rules of selling short and selling on the margin, did not use the dangerous derivatives in nothing but the old futures market “farmer’ agribusiness.

Now the generation after has been suckered again, the market convinced them to put their retirements in the market and convinced them that everybody can play a game with a deck staked against them. Oh! Go ahead and buy stock, even if it goes down in value you will get it back over time. Well it’s been a while now and the trillions people had in the retirement funds are not coming back. The market has become the dangerous powder keg is was in the years preceding 1929, everybody from car salesmen to fry cooks trying to get rich quick or invest their way into the American Dream. This generation is about to learn some history, about to learn what the depression era generation learned the hard way.

May 23, 2012 12:14PM

yesterday all was great now????    WOW, someone has been into the meds again, how can it change minute by minute ???????  GET THE FACTS BEFORE YOU REACT!! FIRST tell us the truth !!!  We have not recovered from the S&L Scandal  ,housing bubble, all  the bailouts an TAX BREAKS given by both parties !!!!!!!!  WHEN WILL THE AMERICAN PUBLIC AWAKEN AN SEE WE NEED TO HIRE NEW EMPLOYEES TO WORK FOR US - ????  VOTE THEM OUT AN HIRE NEW , WITH LIMITS TO HOW LONG THEY ARE IN OFFICE. Give retirement not entitlement to everything they get now.

  Let them get by doing things we have to do- like cut spending ,an trying to eat an still have enough to pay the monthly bills.

 Cut the goverment dole or welfare to EX-LEADERS an let them eat cake!!  give them a percentage not full salary.

May 23, 2012 12:11PM
I think the morons on wall st intentionally send the market downwards with an excuse like this ,so all the people panic and sell their stocks at a discount as an attempt to stop the bleeding . then they, buy them up later at the lower price. I do believe your being played
May 23, 2012 12:11PM
Prg:  it's not about guiding the economy to the right track for growth.. it's about getting reelected.  The worse the economy is, the better they are.  That's why the party that doesn't have the presidency is always the one making noise about debts and deficits.  It lets them be obstructionist while pretending to be standing up for a noble cause.
May 23, 2012 12:10PM
There is NO recovery here..........Obama!!!! It's called a depression!!!!!!!!!!!!!!!!!!!!
May 23, 2012 12:08PM
Government spending reductions are exactly the wrong way to go if you want an economic recovery. Republicans like to push that most, at the same time they don't want taxes on the wealthy to go up just a little. This is a prescription for calamity. Their economic ideology is bankrupt but apparently still fools a lot of Americans, who actually believe Obama and Democrats are the problem. This of course is what they've hoped for and was behind all their efforts to obstruct Obama every step of the way from making better progress on the economy, since their #1 priority was making sure he was a one-term president, as they repeatedly said themselves, and really didn't want to see the economy get better under Obama. Sound like dirtbags? If it walks like a duck and talks like a duck, it's a duck. Republicans have rarely been known to learn from history or admit they were wrong. They just double-up their riff-raff agenda with their screwball arguments. If they prevail in November, you can pretty much bet the U.S. will fall into another recession which could well be worse than the first one, since these knuckleheads just don't understand how economics work. They're economy destroyers, but sure do a fine job making things fat for the wealthy while the rest slip into poverty.
May 23, 2012 12:06PM
On the face of it,  Merkel is right. We need to BOTH tax raises and spending cuts to make things right.  But the best laid plans of mice and men they sometimes go awry and yin yang , the law of unintended consequences, kicks in
 In this case what Merkel says would be GREAT if we had a prosperous economy going.  We don't so instead she is tossing gasoline on the fire by suppressing economic growth even further and that leads to a deflationary spiral
May 23, 2012 12:04PM

Let's see the lawyers make money when facebook goes on IPO and then the lawers make money when facebook is sued. Pretty soon we will need more laws and then more lawyers to support the laws. Then more regulators to enforce the laws. Then more taxes to pay the regulators. Then more unemployment benefits to pay to people since companies are overtaxed and over regulated.

This has a name--Californication. 

May 23, 2012 12:00PM

No worries folks ...everything is getting better!  obama, the great and powerful, said so!!!


...oh, and did you hear that HE killed osama? 


dow's down 1000 in just a few weeks!

May 23, 2012 12:00PM

Morgan Stanley did a finacial review of Face Book prior to the release of the IPO.  MS found that FB had some serious financial issues and notified its largest buyers of this instead of releasing the information to the public.  The big investors made a killing, the small investor got raped and Morgan Stanley walked away with billions in commissions.   When the Obama appointed SEC officals get through with their investigation MS will get a slap on the hand just like BoA, Goldman Suchs, JPM and others. 


Tumbleweeds-The Pork barrel spending in the military is usually on large contracts for equipment and those contracts should be bid on a competitive basis.  That would end a lot of the military waste in spending.  Maintaining our military bases is totally different whether its Texas, Georgia, Oklahoma, Missouri or Washington.  True the economies in those cities around the bases benefit, just like the businesses that benefit from the spending around DC. Gutting our military like Carter and Clinton did is not the answer and it weakens our national security.  Reducing the EPA, Dept of Education, Dept of Energy, IRS and other bloated agencies would cut a lot more waste than gutting the military and weakening our nation. 

May 23, 2012 12:00PM
Any questions about the 401K's and pension plans under attack, now?  The 'shill' game continues and the 'boat'....their's is sinking quickly. is our's and for all thinking that there 'retirement' is safe....think again.   
May 23, 2012 11:58AM
Americans are already taxed to the max. I would like to know..............who ever thought that inheritance tax is justified? It is just another way for big government to keep families from retaining their wealth. So wrong............. Government wants your money.....if you have any........!  Family money has already been taxed to the max!!!!! So wrong!!!!!!
May 23, 2012 11:55AM
 Brutus- yeah but somebody on Forex just made a HUGE bundle. They had better cash in via a stop loss order because the Central Banks can screw with currency rates any time they see fit and with NO warning. You wake up one morning and the fortune has gone poof if you don't use a stop loss
May 23, 2012 11:54AM
The Republicans cries "It's Class Warfare". No!...its Social Darwinism They believe strongest or fittest should survive and flourish in society, while the weak and unfit should be allowed to struggle or even die.
May 23, 2012 11:53AM
May 23, 2012 11:53AM
I'm afraid this looks like, they might indeed take every bit of the investors money..........then of course they will be bailed out..................and investors will just lose their money. An excuse for economical failure and bailouts. Really worried.......................
May 23, 2012 11:51AM
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