Shares Move Lower on Latest Economic Worries

By JACK HEALY
The New York Times
Published: Jan 08, 2009

Worries about falling profits and soaring unemployment dragged Wall Street lower on Tuesday, damping some of the optimism that had crept back into the markets in the new year.

Stock markets dropped sharply on Wednesday as warnings from the media company Time Warner and the computer chip maker Intel foreshadowed a bleak season for fourth-quarter corporate earnings.

A new report from ADP Employer Services also showed that private employers cut 693,000 jobs as the recession deepened in December, far more than economists’ expectations of 495,000 job losses. The report stoked fears that unemployment numbers for December, scheduled to be released on Friday, could prove far worse than economists are expecting.

In addition, the aluminum company Alcoa said late Tuesday it was reducing its global work force by about 13,500, or 13 percent, by the end of the year.

After 12:30 p.m., the Dow Jones industrial average was down 170 points or 1.9 percent. The broader Standard & Poor’s 500-stock index was down about 2 percent while the technology-heavy Nasdaq composite index was 2.1 percent lower.

The losses wiped out Wall Street’s gains of a day earlier, prompting questions about whether investors had lost the optimism that crept back into the markets over the past two weeks. The major indexes have climbed more than 20 percent from their recent lows of late November.

“Investors are very nervous,” said Sam Stovall, chief investment strategist at Standard & Poor’s. “While there’s a good chance that the Nov. 20 low is the low for this bear market, nobody wants to say so just yet.”

Shares of Time Warner, which owns AOL, CNN and other media properties, fell 5.7 percent Wednesday after the company slashed its earnings outlook for 2008 from about $1.07 a share, saying that it expected to report an overall loss for the year. The company said it expected to write-down $25 billion report an operating loss of $8.9 billion.

In a statement, Time Warner said the economic downturn had been “somewhat more challenging than the company previously expected.”

Shares of Intel fell 4 percent after the chip-maker said its fourth-quarter revenues had dropped more than 20 percent from a year earlier, as demand for computers and microprocessors ebbed.

“The earnings season will be a critical test of whether the bear market’s over or not,” said Ed Yardeni, president of Yardeni Investment Research. “The question will be guidance. Most managements are going to be saying, ‘We can’t give you any guidance. We don’t know where this thing’s going to go.”

Shares of Alcoa fell 7 percent, a day after the company said it would be cutting 13,500 jobs . Alcoa also said it planned to reduce output by 18 percent this year, as the global recession saps demand for aluminum and drags metals prices lower.

Crude oil prices, which have rallied 40 percent off their recent lows, fell $1.14 to $47.44 a barrel in New York trading on signs that inventories of oil and gasoline continue to swell. A weekly report from the Energy Information Administration showed that crude supplies rose 6.7 million barrels to 325.4 million barrels through last Wednesday.

Markets in Europe fell after a mixed performance in Asia.

© The New York Times. All rights reserved. This article originally appeared in The New York Times.