Bloomberg News

U.S. Stocks Decline a Second Day as Investors Await Jobs Report

June 02, 2011

June 2 (Bloomberg) -- U.S. stocks retreated, a day after the biggest slump for the Standard & Poor’s 500 Index since August, as investors awaited the Labor Department’s monthly report on employment in the world’s largest economy.

Limited Brands Inc. and Gap Inc. paced losses among chain stores, falling at least 2.1 percent. Goldman Sachs Group Inc. retreated 1.3 percent after two people familiar with the matter said it received a subpoena from the Manhattan District Attorney regarding the bank’s activity leading into the credit crisis. Joy Global Inc. gained 5.4 percent, spurring a rally in industrial companies, after the mining-equipment maker reported profit that beat analysts’ estimates.

The S&P 500 fell 0.1 percent to 1,312.94 at 4 p.m. in New York. It slumped 2.3 percent yesterday, the most since August, after data showing slower-than-forecast job growth spurred concern that tomorrow’s Labor Department report will trail estimates. The Dow Jones Industrial Average dropped 41.59 points, or 0.3 percent, to 12,248.55 today.

“Nobody is going to jump in with strong conviction before the jobs report,” said Peter Jankovskis, who helps manage about $2.7 billion at Oakbrook Investments in Lisle, Illinois. “We’ve been experiencing fairly weak economic figures. Investors need more evidence that this is a temporary slowdown.”

The S&P 500 tumbled to a six-week low yesterday following ADP Employer Services’ jobs report and separate data from the Institute for Supply Management that showed manufacturing expanded at the slowest pace in more than a year. Citigroup Inc.’s U.S. Economic Surprise Index, which tracks the rate at which data are beating or missing estimates, turned negative in May and has since fallen to the lowest level since January 2009.

Factory Orders

Stocks fell today as data showed the economic recovery is slowing. Orders placed with U.S. factories fell in April by the most in nearly a year as demand for aircraft waned and Japan’s earthquake restrained auto-related supplies. A separate report showed that more Americans than forecast filed applications for unemployment benefits last week, signaling the job market is weakening as employers trim staff to cut costs.

“There are so many worries that hit the screen that investors don’t know where to focus on first,” said Bruce McCain, who oversees $22 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland. “There’s sluggish growth, the European crisis, fiscal issues, high commodity prices. It’s not like we’ll suddenly go over the edge and into an abyss. Still, those are uncertain times. That is reflected in global markets.”

U.S. Government Rating

Moody’s Investors Service said that if there is no progress on increasing the statutory debt limit in coming weeks, it expects to place the U.S. government’s rating under review for possible downgrade, due to the very small but rising risk of a short-lived default. Moody’s said if the debt limit is raised and default avoided, the Aaa rating will be maintained. Lack of an agreement could prompt Moody’s to change its outlook to negative on the Aaa rating.

Limited Brands, Gap and other U.S. retailers reported May sales that trailed analysts’ projections as increasing prices and surging gasoline costs deterred budget-conscious shoppers. Limited, operator of the Victoria’s Secret chain, posted a gain of 6 percent in same-store sales, missing the 7.4 percent average of analysts’ estimates compiled by Retail Metrics Inc. Sales at Gap, the largest U.S. apparel chain, fell 4 percent, more than five times the rate analysts projected.

Surging Commodity Prices

Surging costs for cotton, oil and labor in Asia have forced some apparel chains to pass costs on to consumers, with several saying hikes will accelerate this year. Some shoppers are scrimping on trips to stores because they can’t keep up with the price of fuel.

Limited Brands slumped 2.2 percent to $37.87. Gap dropped 4.1 percent to $18.12.

Goldman Sachs Group Inc. slid 1.3 percent to $134.38. The fifth-biggest U.S. bank by assets received a subpoena from the Manhattan District Attorney’s office seeking information related to a Senate subcommittee report on Wall Street’s role in the housing market collapse, according to two people familiar with the matter.

Joy Global gained 5.4 percent to $90.51. The mining- equipment maker reported second-quarter profit of $1.52 a share. Analysts surveyed by Bloomberg had estimated earnings of $1.35 a share on average.

Education Companies Rally

For-profit colleges rallied as the U.S. Education Department gave the industry more time to comply with rules that will cut off federal aid to institutions whose students struggle the most to repay their government loans.

Corinthian Colleges Inc. gained 27 percent to $5.06. Apollo Group Inc. advanced 11 percent to $46.90.

More than $578 billion has been erased from U.S. equity markets since the S&P 500 peaked at 1,363.61 on April 29, pushing the index’s valuation to 13.3 times estimated profit for 2011 from 13.8 times. The drop is creating a buying opportunity for investors willing to withstand declines that may reach 10 percent, according to Blackstone Group LP’s Byron Wien. Wien, who estimates earnings for companies in the gauge will climb about 12 percent in 2011, says shares will prove a bargain and the index will rally.

“Investors should be looking for buying opportunities,” said Wien, the vice chairman of Blackstone Advisory Partners, whose parent, New York-based Blackstone Group LP, is the world’s largest private-equity firm. “The economy is not as bad as it looks right now. Corporate profits will be good, very good. People are asking me, ‘Do you still think the market can get to 1,500 by the end of the year?’ I do.”

--Editors: Joanna Ossinger, Jeff Sutherland

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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