Bloomberg News

U.S. Stocks Fall as Dow Average Posts Longest Slump Since 2002

June 10, 2011

June 10 (Bloomberg) -- U.S. stocks fell, extending the longest weekly Dow Jones Industrial Average slump in more than eight years, amid concern the global economy is slowing.

Caterpillar Inc. and Boeing Co. dropped at least 2 percent, pacing losses among companies most-tied to economic growth. Exxon Mobil Corp. fell 1.7 percent as crude oil tumbled the most in four weeks. A gauge of banks in the Standard & Poor’s 500 Index retreated 0.3 percent, paring a 2.2 percent slump, after CNBC reported that international regulators are considering toning down proposed capital rules for large banks.

The S&P 500 fell 1.4 percent to 1,270.98 at 4 p.m. in New York. It has retreated six straight weeks, the longest slump since 2008. The Dow dropped 172.45 points, or 1.4 percent, to 11,951.91. Its last six-week slump ended in October 2002, the start of a five-year bull market. The Russell 2000 Index and the Nasdaq Composite Index erased their 2011 gains today.

“It’s a shortage of buyers,” said Michael Shaoul, chairman of Marketfield Asset Management, which oversees $1 billion in New York. “The economically sensitive stuff is going to be weak while the data is weak. In addition, we’re going to go through a period of over-regulation of the large banks. It’s going to lead to significantly less profitability.”

About $1 trillion was erased from American equity markets between the S&P 500’s peak on April 29 and yesterday amid weaker-than-expected economic reports. The index has retreated 6.8 percent since the end of April as sales of existing homes unexpectedly declined, growth in industrial production stopped and the unemployment rate rose.

‘Frustratingly Slow’

Federal Reserve Chairman Ben S. Bernanke said this week that the U.S. recovery was “frustratingly slow.” He also said the central bank should maintain record monetary stimulus, while giving no indication he was planning a third round of asset purchases known as quantitative easing, or QE3.

Global stocks fell today after China reported a lower-than- estimated $13.1 billion trade surplus in May, as surging imports signaled the nation’s demand may support global growth while adding pressure for higher interest rates. Stocks also fell after U.K. manufacturing dropped more than economists forecast as an extra public holiday for the royal wedding hurt orders and the impact of the Japanese earthquake hit supplies.

“People are more anxious now,” said Mike Ryan, the New York-based chief investment strategist at UBS Wealth Management Americas, which oversees $761 billion. “Some people see these economic releases as signs that perhaps the economy is going to slip back into recession. Every time we get these economic weak spots, people are going to react a bit more harshly.”

Most-Tied

Companies most-tied to economic growth slumped. The Morgan Stanley Cyclical Index dropped 1.8 percent as 27 of its 30 stocks retreated. The Dow Jones Transportation Average of 20 stocks decreased 1.5 percent. Caterpillar, the world’s largest maker of construction equipment, declined 2.5 percent to $96.79. Boeing slumped 2 percent to $72.69.

A gauge of energy shares had the biggest decline among 10 S&P 500 industries, falling 1.9 percent. Crude oil tumbled 2.6 percent, the most in four weeks, after the al-Hayat newspaper reported Saudi Arabia will raise oil production to 10 million barrels a day next month. Exxon Mobil dropped 1.7 percent to $79.78. Chevron Corp. declined 1.5 percent to $99.67.

Banks in the S&P 500 pared losses after CNBC said the biggest lenders are more likely to face a 2-to-2.5-percentage- point surcharge on capital requirements. International central bankers and supervisors are requiring banks to hold more capital to avoid future taxpayer-funded bailouts.

Better for Shareholders

A proposed surcharge, previously reported to be 3 percent, may be lowered amid pushback from European nations, especially France, CNBC said without saying where it got the information. The amount may be set at a meeting in two weeks.

“The smaller the buffer, the better it’s going to be for bank shareholders,” said Jason Goldberg, senior analyst at Barclays Capital in New York. Amid a regulatory overhaul, banks are facing “a lot of headwinds out there. The industry hasn’t gotten a break in a while.”

Shares of Bank of America Corp., which had fallen as much as 2.3 percent, rose 1.4 percent to $10.80. Citigroup Inc., which had been down as much as 2.5 percent, advanced 0.4 percent to $37.92.

The S&P 500 Financials Index dropped as much as 2.1 percent after the Fed said it will expand a capital-planning program to the 35 largest U.S. banks. Banks with at least $50 billion in assets will be required to conduct annual exams. The index lost 0.7 percent at the end of the day.

Buying Back Less

Travelers Cos. slumped 3.1 percent, the most since Nov. 16, to $59.21. The insurer added to the Dow in 2009 said it’s scaling back share repurchases because about $1 billion in catastrophe costs will probably wipe out second-quarter operating profit.

Tiremakers declined as JPMorgan Chase & Co. said U.S. consumer demand for replacements fell 3 percent in May from the previous month, below the average 8 percent growth rate in the past nine years. Goodyear Tire & Rubber Co. fell 6.7 percent, the most since Oct. 28, to $14.99. Cooper Tire & Rubber Co. dropped 7.1 percent, the most since Aug. 5, to $19.73.

--With assistance from Donal Griffin in New York. Editor: 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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