Once again Europe caused the stock market to tank today. Italian bond yields rose to a record high of over 7% and US bank stocks fell big in this awful trading session.
More bad housing data was released today as the median price for previously occupied homes sold in the July-to-September quarter declined when compared with last year in 111 out of 150 metro areas tracked by the National Association of Realtors.Prices rose in just 39 metro areas.
GM's stock slumped as much as 10%, despite third-quarter earnings beating the consensus forecast. The reason for the sell-off was weak guidance for the current quarter, which implied earnings about 40% below the Wall Street consensus.
Here are the top financial stories of the day:
1) Wall Street plunges as European debt plight worsens-From Reuters
Stocks tumbled 3 percent on Wednesday in the market's worst day since mid-August as a spike in Italian bond yields signaled the European debt crisis had worsened.
All 10 S&P sectors were down, but S&P financials were the hardest hit on worries about European exposure, dropping 5.4 percent.
U.S. stock markets have grown more chaotic in response to rising volatility in European debt markets, and investors have trouble keeping up with a steady stream of headlines and pricing in how the crisis might play out.
"The market has turned into a derivative of what's happening in Europe," said Craig Hodges, president at Hodges Capital Management in Dallas, Texas.
The Dow Jones industrial average was down 389.24 points, or 3.20 percent, at 11,780.94. The Standard & Poor's 500 Index was down 46.82 points, or 3.67 percent, at 1,229.10. The Nasdaq Composite Index was down 105.84 points, or 3.88 percent, at 2,621.65.
Dominating market moves are day traders and "people trying to capture and skim decimals off stocks," Hodges said.
The spread of the crisis to Italy has lifted it to a new level. European Union sources said German and French officials were discussing drastic plans, including an overhaul that would possibly create a smaller euro zone.
Italy's bond yields shot up to 7.502 percent, a new high since the euro was introduced in 1999. Investors were forced to sell Italian bonds after a European clearing house increased the collateral needed to borrow against that debt.
The 7 percent level was the point where European nations, including Ireland and Portugal, had to seek bailouts as their financing costs ballooned.
General Motors Co slid 10.9 percent to $22.31 after the automaker said it would not break even for the year in Europe, as it had forecast, due to deteriorating conditions in the region.
The S&P 500 saw its worst daily percentage drop since August 18.
Prime Minister Silvio Berlusconi's insistence on elections instead of an interim government raised concerns of prolonged instability and delays to economic reform.
Italy has replaced Greece at the center of the euro zone debt crisis and is seen teetering on the cusp of requiring a bailout. A deal on forming a Greek national unity government collapsed while economic turmoil continued.
Reflecting growing market anxiety, the CBOE Volatility Index VIX jumped more than 30 percent, its biggest daily percentage gain since mid-August. The index usually moves inversely to the S&P 500 as traders use it as a hedge against falling stocks.
"Italian bonds are essentially serving as another fear index like the VIX, and right now they're reflecting a lot of fear," said Charles Reinhard, deputy chief investment officer at Morgan Stanley Smith Barney in New York.
Among bank stocks, Morgan Stanley fell 9 percent to $15.76. Goldman Sachs Group Inc dropped 8.2 percent to $99.67. Bank of America Corp lost 5.7 percent to $6.16.
2) Home Prices Keep Dropping-From The Wall Street Journal
U.S. home prices fell in nearly three-quarters of metropolitan areas in the third quarter and the national median price dropped 4.7% as the housing market continued to show weakness.
The median price for previously occupied homes sold in the July-to-September quarter declined when compared with last year in 111 out of 150 metro areas tracked by the National Association of Realtors, the trade group said Wednesday. Prices rose in 39 metro areas.
The results were roughly even with the second quarter, in which median prices fell in 109 out of 151 cities tracked by the real estate trade association.
The national median price for single-family homes sold in the third quarter fell to $169,500 from the same quarter a year earlier.
With the economy weak and many Americans reluctant to commit to a home purchase, the housing market has been slow to recover from the worst downtown in decades. The Realtors' group said last month that the number of people who signed contracts to purchase previously occupied homes in the U.S. sank in September to the lowest level in five months.
The Realtors' latest report showed sales of homes in the third quarter were up 17% from a year earlier, a period in which sales dropped off due to the expiration of a federal tax credit. They were down 0.1% from the second quarter.
"Home sales need to recover first, only then can prices stabilize," said Lawrence Yun, the Realtors' chief economist, in a statement.
The metro areas showing the biggest decline in median prices from a year earlier were Mobile, Ala. (-17.7%), Phoenix (-17.6%), Allentown, Pa. (-17.5%) and Salt Lake City (-15.3%). Areas where prices rose included Grand Rapids, Mich. (23.7%), South Bend, Ind. (19.8%), Palm Bay-Melbourne, Fla. (17.7%) and Youngstown, Ohio (13.1%).
3) GM reports $1.7B third-quarter profit, down 15%-From USA Today
Almost a year to the day since going public on Nov. 18, 2010, General Motors reported third-quarter earnings down 15% from last year ago to $1.7 billion.
The profit works out to $1.03 per share vs. $1.20 a year ago. The net profit was down, even though total revenue in Q3 was up 7.6% to $36.7 billion.
Struggling GM Europe again lost money -- $292 million -- after turning a small operating profit earlier this year. But the loss was nearly 50% less than the third quarter a year ago. The division has been mostly in the red since 2000.
Investors beat down GM shares 11% (in a market down about 3%) -- much of it on worries about GM's exposure to Europe's current chaos and the company's comments today: It no longer expects to meet its earlier target for GM Europe of breaking even for the full year before restructuring costs.
But the General made a $2.2 billion operating profit in its key North America market, up $100 million. Gm International Operations (which includes Asia) had earnings of $365 million, down from $559 million a year ago. And GM South America lost $44, down from a $163 million profit a year ago.
Overall, GM sold 2.2 million vehicles in Q3, up 9%, led by strong global sales for its Cruze compact, as well as stronger sales for its big pickups and continued hot sales for its small crossovers in the U.S.
GM was able to capitalize on the production cuts by tsunami-hit Japanese rivals to raise its U.S. market share to 20.1% from 18.6% in the quarter a year ago. CFO Dan Ammann told reporters this morning, "We had revenue growth year over year; we have (market) share growth year over year … customers are obviously seeing the value of the vehicles that we have in the market,"
That also let GM maintain sales while cutting incentive spending in Q3 by 15.5%, according to Edmunds.com. "General Motors benefited from Japanese automaker struggles in the third quarter, and they were able to boost market share while cutting back on incentive spending," says Edmunds.com senior analyst Jessica Caldwell. But "with their Japanese competitors re-emerging, GM will have a tougher fight on their hands in the coming months against refreshed and redesigned offerings like the Toyota Camry and Honda Civic."
While GM continues to post profits, CEO Dan Akerson wants to do much better on it profit margins -- which might also improve a languishing share price (and let taxpayers get back a little more of the bailout money -- see below).
GM's margins are currently about 6%, which puts it back in the pack among major automakers. The most profitable are closer to 8%.
"GM delivered a solid quarter thanks to our leadership positions in North America and China, where we have grown both sales and market share this year. But solid isn't good enough, even in a tough global economy," Akerson said today in a statement. "Our overall results underscore the work we have to do to leverage our scale and further improve our margins everywhere we do business."
Added Ammann this morning, "We plan actions everywhere to improve our margins. This is not just a cost exercise: This is about improving the sustainable profitability of our business."
That might also help boost GM's share price, which, despite the profits of the past year, are down about a third since the IPO.
"More than anything else, GM's stock performance is a victim of its own early success," says Edmunds.com CEO Jeremy Anwyl. "The hype leading up to last year's IPO was about as well-scripted as you can get. GM lined up institutional investors ahead of time and began a steady drumbeat of good news about 45 days ahead of time. But because of tempered overall expectations in the automotive market this year, investors were skeptical of all automotive stocks."
Shares went out at $33 in the IPO last year. They closed Tuesday at $25.04, and were down $2.73, or 11%, to close at $22.31. That was bad news for taxpayers: The U.S. Treasury still holds about 26% of the company, a stake it has said it intends to sell as soon as possible and prudent. But it would need to be able the remaining stake for about $53 a share for taxpayers to break even on the nearly $50 billion GM bailout.
GM was the last Detroit automaker to report third-quarter results: Chrysler posted a $212 million profit, and Ford, a $1.6 billion net profit.
Quote of the Day from Dave Ramsey.com:
What we plant in the soil of contemplation, we shall reap in the harvest of action. — Meister Eckhart
No comments:
Post a Comment