Bloomberg News

S&P 500 Tumbles Most Since August as Economic Data Disappoints

June 01, 2011

June 1 (Bloomberg) -- U.S. stocks tumbled, giving the Standard & Poor’s 500 Index its biggest decline since August, as manufacturing expanded at the slowest pace in more than a year and employers hired fewer workers than forecast.

All 10 groups in S&P 500 slumped more than 1 percent. The Dow Jones Transportation Average, considered a proxy for economic growth, dropped 3.4 percent. Caterpillar Inc. and Boeing Co. retreated at least 3.4 percent, pacing losses in industrial companies. Banks had the biggest decline in the S&P 500 within 24 industries, sinking 4.7 percent, amid concern lending will slow as the economy loses momentum.

The S&P 500 retreated 2.3 percent to 1,314.55 at 4 p.m. in New York. The Dow Jones Industrial Average slumped 279.65 points, or 2.2 percent, to 12,290.14. The Russell 2000 index of small companies declined 3.2 percent, the most in nine months.

“We’re in a soft spot,” said James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $340 billion. “There are, of course, reasons for a slowdown. The rise in energy prices, the disruptions from Japan’s earthquake and the slower pace in emerging markets. The market will be consolidating until we get more evidence that this weakness is temporary.”

The S&P 500 fell 1.4 percent in May, the biggest monthly drop since August, amid weaker-than-estimated economic data and concern about Europe’s debt crisis. Citigroup Inc.’s U.S. Economic Surprise Index, which tracks the rate at which data is beating or missing economists’ forecasts in Bloomberg surveys, turned negative in May and has since fallen to the lowest level since January 2009.

Manufacturing Slowdown

Stocks extended declines as the Institute for Supply Management’s factory index fell more than projected to 53.5 last month, the lowest level since September 2009, from 60.4 in April. Economists projected the gauge would drop to 57.1, according to the median forecast in a Bloomberg News survey.

Manufacturing growth from China to the euro region and the U.K. slowed last month. A purchasing managers’ index for China showed the slowest pace of expansion in nine months, while the equivalent measure for the euro area fell to a seven-month low. The U.K. gauge of factory growth was at its weakest in two years, while Russia’s index signaled “near stagnation.”

Earlier today, stock-index futures slumped after a report showed U.S. employment increased by 38,000 last month, the slowest growth since September, according to data from ADP Employer Services. The median estimate in the Bloomberg News survey called for a 175,000 advance for May.

‘Complete Failure’

“While many are saying that continued weak data just brings on QE3, it’s clear that QE2 has been a complete failure in helping the actual economy,” Peter Boockvar, equity strategist at Miller Tabak & Co. in New York, wrote in a note to clients. “Every single time the U.S. economy hiccups, the market is trained like a dog to expect the Fed to take out all the firepower.”

The S&P 500 has rallied 26 percent since Federal Reserve Chairman Ben S. Bernanke suggested on Aug. 27 that he would pursue a second round of asset purchases to stimulate the economy. The tactic known as quantitative easing, or QE2, is set to expire this month.

Stocks also fell after Moody’s Investors Service said it downgraded Greece’s local and foreign currency bond ratings to Caa1 from B1, and assigned a negative outlook to the ratings.

Tied to Economy

The Morgan Stanley Cyclical Index of companies most-tied to economic growth slumped 3.5 percent and the S&P 500 Industrials Index fell 3.2 percent. Every stock fell in both indexes, which feature 30 and 60 companies, respectively.

Caterpillar, the world’s largest maker of construction equipment, declined 4.3 percent to $101.24. Boeing slumped 3.4 percent to $75.35.

Financial shares led the declines in the S&P 500 within 10 industries, falling 3.5 percent. Bank of America Corp. slumped 4.3 percent to $11.24. JPMorgan Chase & Co. retreated 3.4 percent to $41.76.

“If the economy slows down, consumers get squeezed,” said Michael Nasto, a senior trader at U.S. Global Investors Inc., which manages about $3 billion in San Antonio. “That means the potential for lower corporate profits, including banks, which would have to deal with delinquencies and weaker credit trends.”

Car Sales

General Motors Co. dropped 5 percent to $30.23, while Ford Motor Co. slumped 4.6 percent to $14.23. GM deliveries dropped 1.2 percent to 221,192 vehicles, the Detroit-based automaker said today in a statement. The average estimate of three analysts was for a 1.5 percent increase. Ford light-vehicle deliveries fell 2.6 percent to 191,529, compared with five analysts’ average estimate for a 0.5 percent decline.

Juniper Networks Inc. slumped 9.9 percent, the most since January 2009, to $32.97. The network equipment maker’s chief executive officer, Kevin Johnson, said at a Bank of America conference that economic weakness is hurting the company.

Tiffany & Co. fell 3 percent to $73.38. Deutsche Bank AG cut the world’s second-largest luxury jewelry retailer to “hold” from “buy,” saying the stock is expensive compared with the company’s peers.

--With assistance from Clyde Eltzroth in New York. Editors: Joanna Ossinger, Nick Baker

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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