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By Jennifer Yousfi
U.S. stocks posted their biggest decline in two weeks early today (Friday) after an unexpected profit decline by General Electric Co. (GE) reignited worries that the credit crunch is causing more damage than investors realize.
GE's stock dropped more than 11%, and was trading at $32.50 shortly after noon EDT.
At midday today in New York, all three of the key U.S. stock indices were down by more than 1%.
The blue-chip Dow Jones Industrial Average Index was down 146.31 points (-1.16%), trading at 12,435.67. Of the 30 stocks in the Dow, 26 were down. The tech-laden Nasdaq Composite Index fell do 2,318.89, a drop of 32.81 points, or 1.4%. And the broader Standard & Poor's 500 Index skidded 15.08 points (-1.11%), to hit 1,345.47.
The S&P is down 2.1% for the week, as this morning's sell-off extended the worst weekly decline in a month.
The transportation sector (up 0.14%) posted the only gain, while the conglomerates sector that GE is part of had the biggest decline, plunging 5.60%.
"We are seeing the collateral damage to the economy," Bill Strazzullo, chief market strategist at financial advisory firm Bell Curve Trading, said in an interview with Bloomberg Television. "We saw this with retail sales, consumer confidence, now we are seeing this with the General Electric earnings. When you look at this from the vantage point on the effect of the broader economy, things are getting worse."
GE – the world's third-largest company by market value – reported a 6% decline in its first-quarter profit, due mostly to trouble in the financial divisions that are part of its massive GE Capital unit. Net income dropped to $4.3 billion, or 43 cents per share, while revenue increased 8% to $42.24 billion.
According to FactSet Research, the mean analyst expectation for profit from continuing operations was 51 cents per share. GE reported just 44 cents per share, which caused its shares to tumble.
At midday, the dollar had gained ground against the yen (up 0.216%), but lost ground against both the euro (down 0.449%) and the pound sterling (down 0.086%).
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U.S. stocks drop sharply on GE's disappointment
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