Weak Treasury auction sends US stocks lower - Forbes.com

Weak demand at a Treasury bond auction touched off worries in the stock market Thursday about the government's ability to raise funds to fight the recession.

The government had to pay greater interest than expected in a sale of 30-year Treasurys. That is worrisome to traders because it could signal that it will become harder for Washington to finance its ambitious economic recovery plans. The higher interest rates also could push up costs for borrowing in areas like mortgages.

Investors also pocketed some gains after strong rally in stocks this week and ahead of the government's April employment report on Friday. Investors were jittery ahead of the formal release of results from the government's "stress tests" of bank balance sheets, which came out later Thursday.

Major stocks market indicators slid more than 1 percent, including the Dow Jones industrial average which lost 102 points after gaining nearly the same amount Wednesday.

Stocks fell almost from the start of trading as investors quickly looked past upbeat reports on the job market and retail sales as traders asked "What's next?" and cut back their holdings following what had been a 4.8 percent gain this week in the Standard & Poor's 500 index.

Analysts said investors are already starting to expect economic numbers that aren't as bad as they had been and are now looking for the next catalyst that could take stocks higher after a surge of more than 30 percent from 12-year lows in early March.

"This is a market that is starting to bake in a lot of positive surprises," said Craig Peckham, a market strategist at Jefferies & Co.

The Dow fell 102.43, or 1.2 percent, to 8,409.85 a day after the blue chips jumped 102 points to close above the 8,500 level for the first time in four months. The index is down 4.2 percent for the year.

The S&P 500 index fell 12.14, or 1.3 percent, to 907.39, and the Nasdaq composite index fell 42.86, or 2.4 percent, to 1,716.24.

Technology shares posted the biggest losses Thursday after security software maker Symantec Corp. posted weaker-than-expected results. Retailers were mixed even after many of them, including Wal-Mart Stores Inc., reported better-than-expected April sales.

"The fact that we're seeing the retailers sell off on these positive surprises suggests the bar has been raised on what companies need to do to take stocks higher," Peckham said.

Wal-Mart said sales of Easter merchandise and more shoppers in its stores helped its sales jump 5 percent, much more than the 2.9 percent rise analysts had forecast. Wal-Mart rose 80 cents to $50.31.

The well-being of retailers is key to the economy because consumer spending accounts for more than two-thirds of economic activity.

Symantec reported a loss for its fiscal 2009 fourth quarter, hurt by a hefty goodwill impairment charge and lower-than-expected revenue. The stock fell $2.60, or 14.8 percent, to $14.99.

Financial stocks mostly fell after big gains Wednesday and ahead of the government report cards on banks. The tests, designed to determine which banks would need a stronger capital base if the economy weakens, are at the crux of the Obama administration's plan to fortify the financial system. The market rallied this week ahead of the results, despite some initial concerns that the tests would show more pain in the industry.

Citigroup Inc. fell 5 cents to $3.81, while Bank of America Corp. rose 82 cents, or 6.5 percent, to $13.51. Regions Financial Corp. fell 60 cents, or 10.3 percent, to $5.23, while Wells Fargo & Co. fell $2.33, or 8.7 percent, to $24.51.

Two stocks fell for every one that rose on the New York Stock Exchange, where volume came to a heavy 2 billion shares.

"Today was a little dose of reality and maybe a little fear coming back into the market," said Joe Saluzzi, co-head of equity trading at Themis Trading LLC.

Saluzzi said investors shouldn't mistake the strong trading volume seen this week as a sign of conviction behind the moves. He said an absence of the big block trades that large financial firms make suggests the trading is more speculative, particularly in financial stocks.

"The real investor needs to be careful," he said.

In economic news, new applications for unemployment benefits fell last week to the lowest level in 14 weeks. The Labor Department's tally of new jobless claims fell to 601,000 from 631,000 the previous week, well below the 635,000 economists had been expecting. A four-week moving average of initial jobless claims that smooths out fluctuations fell from a high in early April.

The employment reading follows a better-than-expected private snapshot of the labor market on Wednesday and comes a day ahead of the government's April employment report. It is often regarded as the most important economic news each month because a drop in unemployment could bolster everything from banks to retailers if consumers can continue to make mortgage payments and go shopping.

There were also reports showing that productivity rebounded slightly in the first quarter while wage pressures eased.

In other trading, the Russell 2000 index of smaller companies fell 12.15, or 2.4 percent, to 492.94.


05.06.09, 04:01 PM EDT

AIG 1st-quarter loss narrows to $4.35 billion

AIG 1st-quarter loss narrows to $4.35 billion
05.07.09, 04:51 PM EDT


Battered insurer American International Group says its first-quarter loss narrowed, and was sharply lower than the record-setting lost it posted a quarter ago.

The New York-based insurance giant says it lost $4.35 billion, or $1.98 per share, during the quarter ended March 31. AIG ( AIG - news - people ) lost $7.81 billion, or $3.09 per share during the year-ago period.

AIG is coming off the biggest quarterly loss in U.S. corporate history. It lost $61.7 billion during the fourth quarter.

The first-quarter loss was primarily tied to costs from the winding down of its financial products unit, which was the at the center of its near collapse last fall. AIG was bailed out by the government, and has received a package of loans worth up to $180 billion to help the firm.

---- remark : buy in at US$1.65 5th May (est S.+8hour) sell at US$2.10 (before the report out)

stress test

or Most Banks, Not Too Stressful
Joshua Zumbrun and Liz Moyer, 05.07.09, 06:25 PM EDT
Federal regulators determine 10 of 19 big banks need to raise capital; BofA, Wells Fargo and Morgan Stanley to sell new shares.

WASHINGTON, D.C. -- Federal regulators have determined that after a relatively successful first three months of 2009, the largest 19 banks only need to raise $75 billion to remain well-capitalized through a prolonged downturn.

The government's so-called "stress tests" relied on estimates of how different classes of loans would perform in a prolonged recession, and then evaluated the portfolios of the 19 largest banks to determine how large their losses might be. The results will require some banks to raise additional common equity as a buffer against recession.

The banks that do not need additional capital will be able to begin the process of repaying TARP funds, provided they demonstrate an ability to raise private debt.

The government has determined that nine banks do not need additional funds: American Express ( AXP - news - people ), BB&T ( BBT - news - people ), Bank of New York Mellon ( BK - news - people ), Capital One ( COF - news - people ), Goldman Sachs ( GS - news - people ), JPMorgan Chase ( JPM - news - people ), MetLife ( MET - news - people ), State Street ( STT - news - people ) and US Bancorp ( USB - news - people ).

Of the $75 billion the other 10 banks need to raise, the bulk of the obligation falls on Bank of America ( BAC - news - people ), which was judged to require $33.9 billion; GMAC ( GJM - news - people ), which needs $11.5 billion; and Wells Fargo ( WFC - news - people ), which needs $13.7 billion according to the tests. Citigroup ( C - news - people ) needs $5.5 billion.

Fifth Third Bancorp ( FITB - news - people ), KeyCorp ( KEY - news - people ), Morgan Stanley ( MS - news - people ), PNC Financial Services ( PNC - news - people ), Regions Financial ( RF - news - people ) and SunTrust Banks ( STI - news - people ) need to raise sums under $2.5 billion.

After the government's announcement, Wells, Bank of America and Morgan Stanley said they would sell new common shares. Bank of America also said it was considering the sale of certain businesses, but added it saw no need for new injections of government money. That has been a sticking point for Kenneth Lewis, Bank of America's chief executive, who was stripped of the title of chairman last week after shareholders lost confidence in his leadership. "We are comfortable with our current capital position in the present economic environment," Lewis said Thursday.

In the most adverse economic scenario tested in the exercise, the government determined the banks stand to lose $600 billion on loans in the next two years, with poor performance for many loan classes. The adverse scenario assumes losses as high as 20%, including as high as 28% from subprime mortgages and 16% from second mortgages. The complete report is available on the Federal Reserve's Web site.