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If U.S. stock index futures are any indication, major U.S. stock market indexes will carve out fresh 12-year lows on Friday morning when markets open, after investors recoiled from steep losses overseas, a mammoth-sized revision to the U.S. economic contraction in the fourth quarter and a government deal with Citigroup Inc. that seriously dilutes existing shareholders.
With about an hour before markets open, futures for the Dow Jones industrial average were down 139 points, to 7039. During Monday's stock market swoon, the Dow closed below 7115 for the first time in 12 years. Similarly, futures for the S&P 500 were down 17 points, to 735, after closing at a low of about 743 on Monday, before showing signs of rebounding later in the week.
U.S. gross domestic product was revised down to a contraction of 6.2 per cent, annualized, in the fourth quarter - far below an earlier reading of 3.8 per cent that had been well above projections from economists. Although economists had anticipated a downward revision to the quarter's GDP, this was worse than the expected 5 per cent drop.
"In the final analysis, it is clearly evident that the U.S. economy was significantly weaker in the fourth quarter than was first thought, which has a certain irony to it as the initial number was significantly less grim than the initial market expectation," said Millan Mulraine, economics strategist at TD Securities, in a note. "And while we do not believe that this horrendous pace of economic contraction will continue at quite this rate, we expect the economy to remain very weak from some time, with further gaudy declines probable."
Meanwhile, Citigroup Inc. struck a deal with the U.S. government which involves a stock swap that will see the administration take control of more than one third of the struggling bank. As part of the deal, more than $50-billion (U.S.) worth of preferred shares will be converted into common shares. According to the Wall Street Journal, the deal will wipe out about three quarters of the existing shareholders' stake in the bank.
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The shares plunged 41.5 per cent in premarket trading, to just $1.44, and dragged down other names in the sector. Bank of America Corp. shares were down 21 per cent and Wells Fargo & Co. was down 12.6 per cent.
In Europe, the U.K.'s FTSE 100 was down 3.6 per cent and Germany's DAX index was down 3.9 per cent in afternoon trading. In Asia, Japan's Nikkei 225 rose 1.5 per cent in overnight trading.
Copyright 2001 The Globe and Mail
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