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Kraft loss, bank worries knock Wall Street

Kraft loss, bank worries knock Wall Street
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First Published: Thu, Feb 05 2009. 08 41 AM IST
Updated: Thu, Feb 05 2009. 08 41 AM IST
New York: US stocks fell on Wednesday as a glum profit forecast from Kraft Foods signaled consumers are skimping even on the basics and investors worried that government efforts to rescue banks could wipe out their shareholders.
Even so, a report showing that the vast service sector shrank less than expected in January spurred technology gains, helping the Nasdaq finish near break-even.
But that was before Cisco Systems Inc, the network equipment maker that is a tech bellwether, forecast a slide of as much as 20% in its current quarter revenue, hitting other tech shares after the bell.
In the regular session shares of Kraft, the top North American food maker, tumbled more than 9% and were the top drag on the Dow, followed by Walt Disney Co,which fell nearly 8 percent a day after reporting a slide in quarterly profit.
Costco Wholesale Corp dropped almost 7% after the largest US warehouse club warned quarterly earnings would fall short of Wall Street’s forecasts.
“Consumer spending is the lion’s share of the economy,” said Anthony Conroy, head trader for BNY ConvergEx in New York. “When consumers stop spending, the economy comes to a halt.”
The Dow Jones industrial average fell 121.70 points, or 1.51%, to 7,956.66. The Standard & Poor’s 500 Index shed 6.28 points, or 0.75%, to 832.23. The Nasdaq Composite Index dipped 1.25 points, or 0.08%, to 1,515.05.
Unease about the deteriorating earnings picture and uncertainty about the banking sector are major hurdles in the market’s attempt to recover from an 11-year low hit on 21November. The S&P 500 is up 4%, since then, but is down about 8% since the start of 2009.
Shares of Kraft, whose products include Oreo cookies and Maxwell House coffee, tumbled 9.2% to $26.11 on the New York Stock Exchange, while Disney plunged 7.9% to $19.00. Costco shed 6.8% to $42.98 on Nasdaq.
Shares of Bank of America plunged 11.3% to $4.70, capping a fifth straight day of declines and touching a 19-year low during the session, as investors fretted about the uncertainty of how a government plan to relieve banks of money-losing assets would work.
Of particular concern is that the plan could wipe out current stockholders, traders said. The Obama administration is due to make an announcement on its bank rescue plan next week.
“The market wants to see some kind of a bank plan that makes sense,” said Angel Mata, managing director of listed equity trading at Stifel Nicolaus Capital Markets in Baltimore.
But after-the-bell, Cisco gave investors a more sober view, with a forecast for a drop of 15% to 20% in its current quarter revenue as the recession deepens. The stock slid 4% to $15.20 after the bell, from a Nasdaq close of $15.84.
The Cisco news caused S&P 500 and Nasdaq stock index futures to sag in after-the-bell trade, suggesting some turbulence could hit the technology sector on Thursday. The sector has rallied strongly since the start of this month.
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First Published: Thu, Feb 05 2009. 08 41 AM IST
More Topics: Markets | US | Stocks | Wall Street | Kraft |