09.06.2008 11:00

STOCKS: weekly review

U.S. stocks fell the most in almost three months by the end of the week after the biggest jump in the unemployment rate since 1986 and a $8-a-barrel rise in oil prices heightened concern that the economy will sink into a recession.

General Electric Co. and JPMorgan Chase & Co. led the retreat after the Labor Department said the jobless rate increased to 5.5 percent in May, higher than every forecast in a Bloomberg News survey. Washington Mutual Inc. tumbled, sending the Standard & Poor's 500 Banks Index to the lowest level in 11 years, on renewed speculation consumer defaults will grow. J.C. Penney Co., General Motors Corp. and Continental Airlines Inc. dropped as Morgan Stanley predicted crude may climb to $150 within a month.
GE, which relies on economic growth to increase earnings at its businesses ranging from jet engines to locomotives and turbines for power plants, declined 90 cents to $30.16. Citigroup, which got about 39 percent of its 2007 revenue from its U.S. consumer business, lost $1 to $20.22.
Washington Mutual, the Seattle-based lender that has lost more than 80 percent of its market value in the past year, declined $1.21 to $7.40, the lowest since 1994. The S&P 500 Banks Index tumbled 5.2 percent, extending its 2008 retreat to 24 percent. The 24-member KBW Bank Index slid 4.6 percent to the lowest since March 2003.

That defense helped turn the tide for its stock, which closed the week down 9%, yet it failed to breathe new life into the financial sector, which was browbeaten by news Wachovia's (WB) board forced out the company's CEO, numerous arguments suggesting consumer loan defaults are due to rise, and a Wall Street Journal report that the SEC is investigating Dow component AIG (AIG) for its swaps accounting.

Strikingly, the market handled quite well the news on Thursday that Standard & Poor's cut its financial strength ratings for bond insurers Ambac Financial (ABK) and MBIA (MBI) to 'AA' from 'AAA'. In fact, the market rallied in the wake of that news, supported by the notion that it had already been accounted for in stock prices.

Separately, the May same-store sales reports from the retailers Thursday morning were also better than expected, led by Wal-Mart (WMT), which reported a 3.9% increase, excluding fuel, and provided an upbeat forecast for June sales.