Offhand Comment Sinks GE Stock, Maybe Market
So there Wall Street was this afternoon, humming right along toward close, riding a nice 300-point gain following the Fed's rate-cut announcement.
It looked like the Dow was going to avoid its near-daily 3:50 p.m. spasm.
Missed it by thatmuch!
At about 3:45 p.m. today, the Dow Jones Newswires moved a story that appeared to say that GE chief executive Jeff Immelt wanted his conglomerate's profits to be the same next year as they are this year.
For investors, that equates to a company forecast, and it's a bad one.
In response, in the few remaining minutes until the market's 4 p.m. close, shares of GE dropped 1.5 percent.
During the same time period, the Dow as a whole dropped more than 350 points, sliding from positive territory -- where it had lived for most of the day -- solidly into negative territory at close.
CNBC, which is owned by GE, quickly jumped on the story and tried to right things. They reported -- and were followed by other news outlets -- that Immelt's comments were taken out of context. Usually, that's the grasping defense of someone who's said something they ought not to have. But here, it looks right.
Immelt is in Spain addressing a business school. He was asked a question and here is his response in total:
"Your operating team has to be at its best. So we now say to our operating team we would like to make the same amount of money in 2009 even if our revenues decline by 10 to 15 percent. So we send the team out to go figure out how we can earn the same amount of money even if revenues decline next year."
This is the kind of CEO statement that ought to send a stock price soaring instead of sinking. Immelt is saying: Even if the economy turns worse and our sales drop by a catastrophic amount, our company will find a way to maintain the same profits we had this year.
Instead, in this era of light-speed communication combined with a twitchy market, Immelt's very bullish statement came across incorrectly as a dire revenue warning.
Shares of GE rebounded somewhat in after-hours trading, as did the Dow.
There was some feeling that the GE drop had dragged down the entire Dow in its last minutes, but CBNC's Bob Pisani was skeptical, noting that 15 percent of the Dow's total volume for the day traded in the last 15 minutes, which would be an awful lot of reaction to just one headline.
Moments ago, Reuters reported that Dow Jones Newswires would issue a "clarification" on its earlier characterization of Immelt's comments.
Today's episode is reminiscent of the accident that happened in early September when a six-year-old story about United Airlines declaring bankruptcy found its way onto Bloomberg computer screens in New York and nearly wrecked the company in a matter of minutes.
-- Frank Ahrens
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