By Kate Gibson
The stock market's fall Friday had the S&P 500 Index near
its bear-market low as companies listed on the broad-market index
engaged in another record-breaking quarter of slashed
dividends.
After lapsing more than 200 points, the Dow Jones Industrial
Average (DJI) was more recently off 50.02 points to trade at
7,415.93. Earlier, the blue-chip index fell to an intraday low of
7,249.47, its lowest level since October 2002. The S&P 500
(SPX) also pared losses, lately off 5.78 points to 773.16, and the
Nasdaq Composite (RIXF) shifted to positive turf, up 3.10 points to
1,445.92.
After leading losses earlier on, financials fronted sector gains
in afternoon trade, which also had gold futures closing above
$1,000 an ounce.
"Given the uncertainty with corporate earnings, gold is one area
investors should be looking at to hedge themselves against the
perception that the dollar decline is somewhere on the horizon,"
said Dan Greenhaus, an analyst at Miller Tabak.
Gold is often purchased as a hedge against inflation, which is
not an immediate concern, with consumer prices flat for the past 24
months.
While inflation could be on the more distant horizon, it is an
unlikely cause for concern for near-term investors, analysts
said.
"The rational investor is hiding, not investing in gold, money
markets and Treasuries -- those harbors of safety represent pent-up
demand for stocks," said Art Hogan, chief market strategist at
Jefferies & Co.
Dividend reductions within the S&P 500 in the fourth quarter
of 2008 came to a record $15.9 billion, according to Howard
Silverblatt, senior index analyst at Standard & Poor's.
"Now, 50 days into the quarter, the record has already been
broken, with 26 issues cutting $16.6 billion," the analyst said,
adding that further cuts are expected.
Those cutting dividends in February included motorcycle maker
Harley-Davidson Inc. (HOG), retailer Macy's Inc. (M) and
institutional money manager State Street Corp. (STT).
Conversely, agricultural giant Archer-Daniels Midland Co. (ADM),
beverage giant Coca-Cola Co. (KO) and paint supplier
Sherwin-Williams Co. (SHW) all boosted their payouts to investors
during the month.
The S&P, trading near its Nov. 20, 2008, low of 752.96, has
shed $7.02 billion -- more than half its value -- since its Oct. 9,
2007, highs, said Silverblatt.
Still, he managed to find a silver lining in the losses: "We've
already lost more than is left, so things have to be better ahead
than behind."
Another positive, according to Jefferies & Co.'s Hogan, is
that the once-wide gap between top-down and bottom-up estimates of
corporate earnings for 2009 has narrowed, with consensus estimates
effectively adjusted to a level "that is probably attainable."
A $60 estimate for 2009, multiplied by 12.5 times, yields a 750
target on the S&P, which is "extremely fairly valued," said
Hogan.
Greenhaus instead opted to use an 11 times multiple in light of
a more disruptive-than-usual economic contraction, saying $60 times
his now-reduced multiple puts the S&P's "fair value" at 660,
assuming the multiple and price target hold.