U.S. Stocks Decline on Recession Concern; Bank of America Falls

By Elizabeth Stanton

Jan. 22 (Blomberg) -- U.S. stocks tumbled for a fifth day, the longest stretch of declines in 11 months, after the Federal Reserve's emergency interest-rate cut failed to persuade investors the economy will avert a recession.

The declines following yesterday's holiday added to a sell- off across Europe and Asia that has erased $7.3 trillion in global stock-market value this year. Exxon Mobil Corp. and Chevron Corp., the two largest U.S. energy companies, fell on lower oil prices. Bank of America Corp. declined to the lowest since April 2003 on the New York Stock Exchange after the second-largest U.S. bank said earnings dropped 95 percent.

The S&P 500 retreated 33.01, or 2.5 percent, to 1,292.18 at 10:18 a.m. in New York. The Dow Jones Industrial Average decreased 274.76, or 2.3 percent, to 11,824.54. The Nasdaq Composite Index lost 69.4, or 3 percent, to 2,270.62. About five stocks fell for every one that rose on the NYSE.

``People may see it as an extreme step and feel that it's a sign the situation is worse than they had anticipated,'' said John Carey, who helps oversee about $13 billion at Pioneer Investment Management in Boston. ``This will definitely wake people up who were thinking the economy was just fine.''

The Fed lowered its benchmark rate by 0.75 percentage point to 3.5 percent in its first emergency move since 2001, citing ``a weakening of the economic outlook and increasing downside risks to growth.'' Policy makers weren't scheduled to gather on rates until Jan. 29-30.

Nasdaq 'Bear' Market

The Nasdaq Composite today entered a so-called bear market, marked by a decline of at least 20 percent from a high. The S&P 500 and Dow average have both lost 17 percent from their Oct. 9 records. The Nasdaq reached an almost seven-year high on Oct. 31.

The U.S. market was closed for Martin Luther King Day yesterday. Stocks posted the steepest weekly drop since July 2002 last week after lower-than-estimated home construction, retail sales and manufacturing reinforced speculation that the economy is contracting.

The MSCI World Index fell 2.7 percent. The Dow Jones Stoxx 600 Index of European shares slumped 0.6 percent.

Exxon decreased $2.92 to $82.16. Chevron lost $3.49 to $79.97. Crude oil dropped to a six-week low, falling $3.22 to $87.35 a barrel in New York, on concern demand will diminish in an economic slowdown.

Bank of America, Wachovia

Bank of America slid $2.37, or 6.6 percent, to $33.60. Fourth-quarter net income fell to $268 million, or 5 cents a share, from $5.26 billion, or $1.16, a year earlier the bank said in a statement. Excluding merger and restructuring costs and a gain from the sale of Marsico Capital Management LLC, the company earned 5 cents a share, missing the 21-cent average estimate of analysts surveyed by Bloomberg.

Wachovia Corp., the fourth-largest U.S. bank, said profit fell 98 percent after writedowns for bad loans and mortgage- backed securities. Its shares slipped 34 cents to $30.46.

The U.S. economy may be ``one shock'' away from a recession, with the global slump in stocks a possible ``tipping point,'' according to Lehman Brothers Holdings Inc. The New York-based firm sees the odds of a recession in the world's largest economy at 40 percent, rising from a ``1-in-3 chance'' at the beginning of the year, Paul Sheard, Lehman's global chief economist, said in a press briefing in Singapore today.

Recession Forecasts

Goldman Sachs Group Inc., Morgan Stanley and Merrill Lynch & Co. are already forecasting the U.S. will slip into recession this year. The world's largest banks and securities firms have announced more than $100 billion in debt writedowns and loan losses after the collapse of the U.S. subprime mortgage market.

The MSCI Asia Pacific Index today lost 6.4 percent. Japan's Nikkei 225 Stock Average dropped 5.7 percent, while India's Sensitive Index fell 5 percent.

Goldman, the world's largest securities firm, dropped $11.30 to $175.91, the lowest since August. Merrill, the biggest U.S. brokerage, retreated $1.88 to $49.99.

Ambac Financial Group Inc., the second-largest bond insurer, rose 60 cents to $6.80. Ambac, which lost 89 percent of its value in the past three months as the value of subprime mortgage-backed securities it guaranteed has slumped, reported a $3.26 billion quarterly loss and said it was evaluating its options.

Apple Inc. is scheduled to report first-quarter earnings after the close of U.S. exchanges. The maker of Macintosh computers may report earnings of $1.61 a share, the average of 23 estimates in a Bloomberg survey. The shares lost $9.50 to $151.86.

Analysts estimate companies in the S&P 500 will report an average 17 percent decline in profits in the fourth quarter, led by a 95 percent decrease in financial company earnings, according to a Jan. 18 Bloomberg survey.

The benchmark for U.S. stock-market volatility surged to the highest since 2003. The Chicago Board Options Exchange Volatility Index, or VIX, rose 24 percent to 33.57. The index, which tends to increase when stocks fall, has more than tripled over the past year. European volatility indexes so jumped.