Bloomberg News

Stocks Drop After Jobs Data; Euro Gains on Greece Discussions

June 03, 2011

June 3 (Bloomberg) -- Stocks fell, dragging the Dow Jones Industrial Average to its longest streak of weekly losses since 2004, as slowing job growth added to signs the economy is weakening. The euro rose as European officials worked toward a second Greek bailout.

The Dow lost 97.29 points, or 0.8 percent, to 12,151.26 at 4 p.m. in New York, adding to its fifth straight weekly loss. The Standard & Poor’s 500 Index declined 1 percent. The euro strengthened 1 percent to $1.4637 as the Dollar Index slumped 0.8 percent to 73.714. Treasuries rose, pushing yields on two- year notes to a seven-month low of 0.41 percent. The S&P GSCI Index of commodities climbed 0.2 percent.

The Dow and S&P 500 slumped to the lowest levels since March after payrolls grew by 54,000 in May, trailing the median economist estimate of 165,000, and the jobless rate unexpectedly climbed to 9.1 percent. The report followed lower-than-estimated data on factory orders, manufacturing and consumer confidence, spurring speculation the Federal Reserve may consider a third round of quantitative easing, or “QE3,” to bolster growth.

“There’s a persistency here,” Bill Gross, who runs the world’s biggest mutual fund at Pacific Investment Management Co., said in a radio interview today on “Bloomberg Surveillance” with Tom Keene. “It’s back to our old new normal. We don’t see a QE3. There’s been too much discussion and dissent within the Fed to permit that type of program again. What we do see is an extension of the language, speaking to an ‘extended period of time.’”

Newell Rubbermaid

All 10 industries in the S&P 500 fell, led by telephone, technology and consumer companies reliant on discretionary spending, which lost at least 1.4 percent. Alcoa Inc., DuPont Co. and Walt Disney Co. dropped 1.7 percent or more to lead declines in 27 of 30 Dow stocks.

Newell Rubbermaid Inc., the maker of Rubbermaid containers, sank 12 percent for its biggest decline since 2008 after cutting its full-year profit forecast because of slumping consumer spending. Some of Newell’s larger retail customers have lowered expectations for U.S. growth as consumer confidence weakens, Chief Executive Officer Mark Ketchum said.

The euro extended gains against the dollar after European Union and International Monetary Fund officials agreed to pay the next installment to Greece under last year’s 110 billion- euro ($161 billion) bailout, paving the way for an upgraded aid package that includes a “voluntary” role for investors.

Missing Forecasts

Data on the economy is trailing forecasts by the widest margin since the bull market began in March 2009, according to the Citigroup Economic Surprise Index for the U.S. At the same time, stock analysts have been boosting estimates for S&P 500 profit growth. Companies in the index are projected to earn $105.31 a share over the next 12 months, compared with $96.92 at the beginning of January, data compiled by Bloomberg show.

Based on that profit estimate, the S&P 500 is trading at a price-earnings ratio of 12.3, compared with an average forward multiple of 14.7 since 2006, the data show. Income has beaten analyst estimates for nine straight quarters. The index is priced at 1.3 times reported sales, down from a 32-month high of 1.4 in February, and 2.2 times book value, according to data compiled by Bloomberg.

Michael Shaoul, whose Marketfield Fund Ltd. beat 81 percent of competitors last year with investments in transportation and retail companies, said private sector hiring has risen by an average 145,000 a month over the last year, faster than economists had predicted. He noted that smaller gains in nonfarm payrolls reported in February and July 2004 failed to derail the last bull market, which peaked in October 2007.

‘Surprisingly Little’

“What the data will do, however, is accelerate the process of economic revision, with estimates of U.S. growth being forced significantly lower across the board,” Shaoul wrote in a note to clients. “As damaging as the process may be for asset values, it has surprisingly little to do with the actual ability of corporations to generate revenue.”

Gross’ Pacific Investment Management warned in May 2009 that returns on financial assets would trail historical averages because of higher deficits and regulation, a phenomenon the firm called “new normal.” U.S. equities have returned 6.2 percent a year since 1900 before dividends, according to inflation- adjusted data compiled by the London Business School and Credit Suisse Group AG in Zurich.

Since March 2009, the S&P 500 has returned 37 percent annually, according to data compiled by Bloomberg. The year return falls to negative 2.8 percent from the market peak on Oct. 10, 2007, the data show. The benchmark gauge for American equities has returned 2.3 percent annually over the past five and years, data compiled by Bloomberg show.

--With assistance from Chris Nagi, Inyoung Hwang, Mary Childs and Nikolaj Gammeltoft in New York and Matthew Brown, Claudia Carpenter, Andrew Rummer, Michael Shanahan and Jason Webb in London. Editors: Michael Regan, Nick Baker

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; 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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