Transcripts

Citigroup's Capital Concerns Continue

SUSIE GHARIB: A roller coaster day on Wall Street, thanks to an earnings downgrade of Citigroup. The Dow tumbled as much as 226 points, but by the close was down just 45 points. Despite today's comeback, the blue chip average is still off by about 14 percent from its all-time high set back in October and the overall tone in the markets remains decisively negative. Suzanne Pratt takes a look at the reason for that pessimism.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: In recent days, it seems a pervasive gloom has grabbed onto Wall Street and won't let go. From the sputtering economy to anemic corporate profits, investors have lots to worry about. Today, it was Citigroup. Its stock fell to its lowest level in nearly a decade on concerns the company may need more outside capital to weather losses from the sub-prime mortgage market. Merrill Lynch cut its earnings forecasts for Citi today, predicting a first quarter loss. Lehman Brothers strategist Simeon Hyman says financials need capitulation before stocks can change course.

SIMEON HYMAN, EQUITY STRATEGIST, LEHMAN BROTHERS: When there's a light at the end of the tunnel of all the financial write-downs, when there's a light at the end of the tunnel of the excess supply in the housing market, that's when the markets will begin to recover.

PRATT: S&P 500 firms are now expected to post a 3 percent decline in first quarter earnings; at the start of the year, analysts were looking for nearly a 6 percent increase. Financials again are likely to weigh down the index, with a 33 percent decline in earnings growth expected. That compares to an 11 percent loss predicted on January 1. Thomson Financial's Mike Thompson believes forecasts will get worse before they get better.

MICHAEL THOMPSON, DIR. OF RESEARCH, THOMSON FINANCIAL: I think the Wall Street community is telling us that by the fact that their pencils are sharpened and it looks like they're heading for more downward revisions. So, the likelihood is that you're going to see more downward pressure.

PRATT: Most experts believe pessimism will continue to weigh on stocks in the months ahead. But once the economy recovers, experts say investors should climb on for a nice ride.

HYMAN: Equities are cheap and we think they are cheap enough that you need to be fully invested, because a likely recession will be relatively shallow and recoveries in the equity markets post a recession are about 30 percent over a 12-month period.

PRATT: First quarter earnings will flood the market beginning in mid- April. If forecasts are correct, it could be the third straight quarter of negative profit growth, something that hasn't happened since 2001. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.