MarketView for July 9

Stock prices fell sharply on Wednesday as the malaise of the economy in general, and the financial sector in particular, once again caught up with Wall Street choking off any sort of a rally and convincing investors and trader alike to pull some money off the table and wait on the sidelines for some indication of the economic outlook going forward.

By the end of the day, the S&P 500 index was solidly in bear country, as worries over rising credit losses hurt financial companies. At the same time, Cisco led technology shares lower after John Chambers, Cisco CEO, reiterated his fears of an extended economic downturn.

The S&P closed 20 percent below its all-time high set in October, making it the last of the three key equity indexes to fall into bear market territory. Stocks have been roiled for months by the credit crisis and a severe economic downturn.

Chambers indicated that comments from its customer base showed that the consensus was that the economy would begin to regain strength in 2009 rather than the latter half of 2008. At the same time, at least two brokerage houses lowered their price targets for Cisco’s shares. Cisco ended the day down $1.30, or 5.68 percent, to close at $21.58, while Intel also fell, closing down $1.11, or 5.31percent, at $19.81. IBM ended the day down $3.48, or 2.81 percent, closing at $120.40, making it the largest drag on the Dow Jones industrial average.

Fannie Mae and Freddie Mac fell sharply again on Wednesday as worries returned that the two pillars of the housing market will need to raise billions of dollars in additional capital through stock sales, diluting the holdings of current investors. Freddie Mac shares ended the day down $3.20, or 23.77 percent, to close at $10.26, while Fannie Mae was down $2.31, or 13.11 percent, to close at $15.31.

Merrill Lynch saw its share price plummet more than 9 percent after Fitch Ratings said it may cut the firm’s debt rating, given expected ongoing write-downs and diminished prospects for earnings. Merrill ended the day down $3.03, or 9.25 percent, to close at $29.74. Bank of America closed down $1.48, or 6.29 percent, at $22.06 after its chief executive said it may feel to some people for the next year as if the economy is in recession. The consensus on the Street is that there will be a 13.5 percent drop in second-quarter earnings of the companies making up the S&P 500 index.

Concerns about the economy also hit big manufacturers such as General and 3M, both with losses of more than 3 percent. GE shares ended the day down $0.87, or 3.10 percent,  to close at $27.19, while 3M ended the day down $2.39, or 3.36 percent, to close at $68.64.

Even Alcoa was unable to hold on to gains a day after the aluminum producer posted second-quarter results that exceeded Street estimates. Its shares ended the day down $0.79, or 2.44 percent, to close at $31.54.

Hiring Falls to 5 Year Low

The Labor Department reported on Wednesday that employers hired workers in May at the slowest pace in nearly five years as a fragile economy apparently sapped enthusiasm for adding staff, a government report showed on Wednesday.

The total rate of hires, which gauges the number of employees added to payrolls during month, fell to 3.1 percent from 3.4 percent in April and was the slowest pace since a matching 3.1 percent in June 2003, the Labor Department said.

Industries driving the hire rate down in May were construction, trade, transportation and utilities, the department said in its monthly Job Openings and Labor Turnover survey. Over the 12 months through May the hires rate dropped in manufacturing, wholesale trade, retail trade, information and finance and insurance. The survey lags many job market gauges, but it can provide additional insight on labor market dynamics.

Last week, the Department said U.S. employers cut workers in June for a sixth straight month, the longest streak since 2002. For the month, 62,000 non-farm jobs were lost; bringing the number of jobs lost this year to 438,000. The unemployment rate was 5.5 percent.

Best Buy Forges Ahead

Best is looking to new product categories and business models to help it double annual sales to $80 billion over the next five years, its management indicated on Wednesday. Mike Vitelli, executive vice president for customer operating groups, indicated that while Best Buy will add stores and boost its market share in mainstay categories such as computers and cell phones to drive growth, it plans to move into product areas that are outside traditional consumer electronics.

For example, in some stores Best Buy is selling an extensive assortment of musical instruments, a stepped-up offering from the basic keyboards and guitars that are available in all stores, he said.

"We believe that is an example of categories that we can add to the traditional Best Buy box that customers will give us credit for and get us into spaces that we're not into today," Vitelli said. Vitelli also said that Pacific Sales Kitchen and Bath Centers, a high-end appliance chain that Best Buy bought about two years ago, was a store model that the retailer plans to expand nationwide beyond its California base.

He also said digital services and international expansion would fuel sales growth. In May, Best Buy agreed to pay $2 billion to create a joint venture with Britain's Carphone Warehouse Group that is expected to open Best Buy stores in Europe.

Ryan Robinson, finance chief of Best Buy's U.S. strategic business unit, said the Carphone deal would be "modestly accretive" to Best Buy's earnings this year.

Best Buy is gaining market share and faring better than rivals such as Circuit City, which is exploring its strategic options, mainly a sale of itself if it can find a buyer in today’s economy and with the competition being put forth by Best Buy.

Meanwhile, in June Best Buy reiterated its forecast of a full-year profit number of $3.25 to $3.40 per share. Best Buy ended the day down $0.95, or 2.33 percent, to close at $39.85.

Anheuser-Busch Tries To Derail Takeover Bid

Anheuser-Busch urged shareholders to withhold consent to InBev, which is trying to replace Anheuser's board of directors with its own slate, and to revoke any consent already given. Anheuser filed a consent revocation statement with the SEC, stating that its board "unanimously opposes" the InBev consent solicitation, in which InBev is asking Anheuser shareholders to vote to remove the current 13-member board and replace it with members chosen by InBev.

InBev's action, which is being challenged by Anheuser in a Delaware Chancery Court and a federal court in Missouri, follows its rejection of InBev's $46.3 billion takeover offer to create the world's largest brewer.

"We believe that the InBev consent proposals are solely designed to enable InBev to take control of your board in order to facilitate InBev's acquisition of Anheuser-Busch pursuant to a proposal that your board has determined is inadequate and not in the best interests of the company's stockholders," said Anheuser in its filing.

"We believe that the existing board -- which is predominantly composed of independent and disinterested directors -- is better able to evaluate what action is in the best interests of the company's stockholders, and better able to decide on a course of action that will protect and enhance stockholder value," it added.

Anheuser is asking shareholders to sign cards that would revoke their consent to InBev's proposals, regardless of whether they actually gave consent to InBev.