Stocks slip after GDP report, mixed earnings

NEW YORK —  The stock market staggered Friday to another hefty loss, closing out the worst-ever January for the benchmark Standard & Poor’s 500 index.

That will only boost the gloom factor on Wall Street, because January often foreshadows the market’s performance for the full year.

The market remained in a funk Friday after the Commerce Department reported that the economy shrank at a 3.8% annual rate in the fourth quarter, the biggest decline since 1982. The contraction was smaller than the 5.4% drop economists expected on average, but that appeared only to increase anxiety about the outlook for the current quarter.

Also hurting stocks were disappointing earnings from Procter & Gamble and reports that an expected government plan to help banks by buying troubled assets had hit a snag.

The Dow Jones industrial average slid 148.15 points, or 1.8%, to 8,000.86. For the month the Dow dropped 8.8% -- its fifth straight monthly decline.

The S&P; 500 sank 2.3% on Friday and gave up 8.6% for the month. That is its worst performance ever in the opening month of the year, eclipsing a 7.6% decline in 1970.

Historically, the market’s performance for the full year has followed January’s lead about three-quarters of the time, according to Standard & Poor’s Corp.

“It’s not a good omen,” said Stuart Schweitzer, market strategist at J.P. Morgan Private Bank. “We are very possibly facing another down year.”

The bulls normally have several factors going in their favor in January. For example, investors who dumped their holdings in year-end tax-loss selling often reestablish positions. Pension funds and people who earn year-end bonuses also often add to their holdings.

Not this year, with the economy still in a tailspin.

“When the market isn’t up in January it means people are making a very conscious decision not to buy stock, and that kind of a decision is not reversed very quickly,” said Phil Roth, analyst at New York brokerage Miller Tabak & Co.

Within the S&P; 500, financial stocks were the worst-performing sector this month, down 27%. They also were the biggest losers of 2008, down 57%.

Investors were unnerved in January by many banks’ huge fourth-quarter losses and by the need for new federal rescue packages for Citigroup and Bank of America.

But the market’s losses extended well beyond the financials. All 10 of the S&P; industry sectors declined. Among other key indexes, the Dow Jones transportation average sank 16% and the Bloomberg REIT stock index plummeted 19%.

Small-company stocks, which rallied strongly during the market uptick at the end of 2008, have been dismal performers this year. The Russell 2,000 index is off 11%.

Even classic “defensive” sectors lost ground this month. The NYSE healthcare index was down 3.5% and the Dow Jones utilities index fell 0.3%.

One winner, and just barely: The XAU index of 16 gold mining stocks rose 0.1% for the month as the metal rallied on deepening fears about the economy and financial system.

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walter.hamilton@latimes.com