U.S. Stocks Drop, Capping Worst Week Since November, on Jobs By Lynn Thomasson

Jan. 9 (Bloomberg) -- U.S. stocks declined, extending the market’s worst weekly slump since November, on concern an increase in the unemployment rate to an almost 16-year high signals the global recession is worsening.

Citigroup Inc., Alcoa Inc. and Target Corp. dropped at least 4.8 percent after employers cut 524,000 positions in December, capping the worst year for firings since 1945. CVS Caremark Corp. slid more than 12 percent, its steepest tumble in seven years, after the second-biggest drugstore chain forecast 2009 profit below analysts’ estimates.

The Standard & Poor’s 500 Index has rallied 18 percent since plunging to an 11-year low on Nov. 20 as investors speculated the worst of the recession is over. The index fell 4.5 percent this week on concern escalating unemployment will further squelch consumer demand after retailers reported worse- than-expected holiday sales.

"You’ve got an incredible strain being put on the consumer in a pretty direct way," said Michael Mullaney, a Boston-based money manager at Fiduciary Trust Co., which oversees $9.5 billion. "You’re in a recession and earnings are still going down. Traders aren’t going to want to hold positions over the weekend."

The S&P 500 lost 2.1 percent to 890.35 with financial and energy shares the biggest drags on the index. The Dow Jones Industrial Average fell 143.28 points, or 1.6 percent, to 8,599.18. The Russell 2000 Index of small U.S. companies retreated 4.1 percent.

Citigroup Drops

Citigroup slid 41 cents, 5.7 percent, to $6.75. Former Treasury Secretary Robert Rubin resigned from his position as senior counselor. Rubin, who advised the bank as it lost $20 billion in the subprime mortgage crisis, also said he won’t stand for re-election to the board.

Separately, a person familiar with the talks said Citigroup may merge its brokerage unit with the one at Morgan Stanley

Alcoa sank 4.8 percent to $10.81 for the second-steepest decline in the Dow after Citigroup. Target, the second-largest U.S. discount chain, lost 5.7 percent to $35.40 and ConocoPhillips fell 3.7 percent to $51.99 as all 10 S&P 500 industries slid at least 0.9 percent.

The S&P 500’s drop this week is its worst performance since it sank to an 11-year low in November. The Dow lost 4.8 percent in the week, also the biggest decline since then.

CVS Slumps

CVS declined $3.65 to $25.69 for the steepest loss since October 2001. Adjusted earnings in 2009 will be $2.53 to $2.61 a share after a "significant" number of pharmacy-management program contracts were renegotiated at lower prices, CVS said. The company’s forecast trailed the average analyst estimate of $2.69 a share, compiled from a Bloomberg survey.

"The stock market hasn’t fully priced in how bad this is going to be," Marvin Barth, chief investment strategist at Tennenbaum Capital Partners in Santa Monica, California, told Bloomberg Television. "You’re not going to see the rapid earnings growth that we had seen for much of the last two decades."

Halliburton Co., the world’s second-largest oilfield services provider, tumbled 10 percent to $19.01 after Barclays Plc reduced its earnings estimates, citing a sharper-than- expected decrease in demand in North America.

S&P 500 energy stocks lost 3.1 percent as a group, as oil declined for a fourth day. Schlumberger Ltd., Hess Corp. and BJ Services Co. retreated more than 4.5 percent.

Crude, Unemployment

Crude slumped 2.1 percent to $40.83 on the New York Mercantile Exchange, bringing its weekly drop to more than 12 percent. Deutsche Bank AG lowered its forecast for the average price of crude oil this quarter by $10 to $45 a barrel, citing reduced global demand.

The unemployment rate climbed to 7.2 percent in December, the Labor Department said, exceeding forecasts from economists polled by Bloomberg. The nation, which created 1.1 million jobs in 2007, lost 2.589 million jobs last year, just shy of the 2.75 million drop at the end of World War II.

President-elect Barack Obama said rising joblessness is a "stark reminder" of the need for Congress to act with urgency on his plan to boost the economy. Some Democrats have criticized the portion of the plan devoted to tax cuts, while Republicans have voiced concern about the size of the proposal and its effect on the deficit.

’Situation Is Dire’

"Clearly, the situation is dire. It is deteriorating," Obama told a news conference in Washington. "For the sake of our economy and our people, this is the moment to act, and to act without delay."

In a Bloomberg Television interview, outgoing Treasury Secretary Henry Paulson endorsed a "robust" fiscal stimulus to revive the economy, and urged his successor to keep deploying the $700 billion financial-rescue fund.

Coach Inc. slid 13 percent to $18.11 for the steepest drop since Oct. 15. The largest U.S. maker of luxury leather handbags lowered its second-quarter profit forecast because of "depressed" store traffic and discounts.

Best Buy Co. fell 5.3 percent to $28.08. The largest U.S. electronics chain said December sales dropped after holiday discounts failed to draw shoppers. Revenue from stores open at least 14 months declined 6.5 percent, the retailer said.

Vail Resorts Inc. sank 5.7 percent to $26.97. The Colorado- based owner of ski resorts said visits decreased 5.8 percent this season and revenue from lift tickets dropped 7.5 percent.

Alcoa, traditionally the first Dow company to release results, kicks off the fourth-quarter earnings season next week.

Earnings Slump

Profits at S&P 500 companies probably dropped 20 percent last quarter and will slide 15 percent in the first quarter, according to estimates compiled by Bloomberg. So far, earnings at S&P 500 companies have fallen for five straight quarters, matching the longest streaks of declines on record. The slump is forecast to last until the middle of 2009.

"It’s going to be the toughest recession we’ve had and the jobs report confirms that," said John Bogle, who created the $75 billion Vanguard 500 Index Fund in 1976. "It’s the most serious in just about everybody’s lifetime and maybe even mine because I was born in 1929."

Lennar Corp. tumbled 20 percent to $9.15 after Barry Minkow’s Fraud Discovery Institute alleged the homebuilder operates its joint ventures "like a Ponzi scheme." Lennar denied the allegations. Minkow, who served more than seven years in prison after being convicted of fraud, posted his allegations today on a Web site called lenn-ron.com.

Almost seven stocks fell for each that rose on the New York Stock Exchange. About 9.2 billion shares changed hands on all U.S. exchanges, 8.4 percent less than the three-month average.

VIX Climbs

Apollo Group Inc. jumped 10 percent to $85.27 for the biggest gain in the S&P 500. The owner of the for-profit University of Phoenix said it had first quarter earnings of $1.12 a share, higher than the 97 cents analysts expected. The company also announced degreed enrollment was up 18 percent.

Concern that stock losses will deepen increased. The Chicago Board of Option Exchange Volatility Index climbed 9.3 percent to 42.82 this week. The VIX, which measures the cost of using options as insurance against declines in the S&P 500, is still less than half its level on Nov. 20.

The difference between what the U.S. government and banks pay to borrow for three months, the so-called TED Spread, is still about three times higher than before credit markets started freezing in August 2007, according to data compiled by Bloomberg.

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.