US stocks nosedive after Microsoft shock
Wall Street again succumbed to bad news today, closing sharply lower as more bad news about earnings and worries about the banking industry wiped out any attempts at a rally.
The major indexes, which plunged and then soared in the first two trading days of the week, ratcheted up and down during the session before ending sharply lower. The Dow Jones industrial average fell as much 271 points before ending down 105.
“We’re seeing a little bit of increase in volatility because things have not gotten much better,” said Scott Fullman, director of derivatives investment strategy for WJB Capital Group.
Bad news from Microsoft set the tone for the day and made clear more pain was to come before an elusive economic recovery would emerge. The company surprised investors by reporting its fiscal second-quarter earnings early – and the news was not good. The software giant posted an 11% drop in profit and said it would slash 5,000 jobs over the next 18 months.
Microsoft said deteriorating global economic conditions and lower revenue from PC software forced it to cut back. The company also said it was unable to provide any profit and revenue forecasts for the rest of the year because of the market volatility.
Uneasiness about financial companies still plagues investors, and many bank stocks took another beating today. Quarterly financial reports showing steep profit declines and big loan losses have investors worried that the financial crisis is far from over, and that the government’s efforts to prop up banks might not be enough to prevent a major failure.
Bank of America said former Merrill Lynch chief executive John Thain resigned after a meeting of Bank of America executives this morning.
The company did not offer a reason for Thain’s departure, but it follows news that Merrill Lynch had moved up its year-end bonuses, handing out payments just days before it was officially acquired by Bank of America on January 1.
Moreover, some analysts expected Thain would leave; it is almost inevitable that in the marriage of two big companies, one of the former CEOs leaves soon after the deal is closed.
Bank of America shares fell 15% today.
More downbeat economic readings, including an increase in the number of weekly jobless benefit claims and a sharp drop in home construction activity, added to the day’s gloom.
Investors found some encouragement after two House committees prepared President Barack Obama’s economic stimulus plan for a vote next week. Still, there were still clear signs that it was not gaining as much Republican support as the new administration had been hoping for.
The Dow fell 105.30, or 1.28%, to close at 8,122.80.
Broader market indexes recovered some of their losses but still showed big drops. The Standard & Poor’s 500 index fell 12.74, or 1.52%, to 827.50. And the technology-heavy Nasdaq composite index dropped 41.58, or 2.76%, to 1,465.49 after the Microsoft news.
