Bloomberg News

U.S. Stocks Slump Amid Europe Woes as Economic Data Disappoint

June 15, 2011

June 15 (Bloomberg) -- U.S. stocks fell, threatening the 2011 gain for the Standard & Poor’s 500 Index, on concern Greece will default and signs the American economy is cooling down.

Wells Fargo & Co. and Bank of America Corp. slid at least 1.7 percent, following losses in European lenders, as officials failed to agree on a rescue plan for Greece. Alcoa Inc. and Exxon Mobil Corp. sank more than 2.1 percent as commodities slumped. The Morgan Stanley Cyclical Index of companies most- tied to the economy fell 2 percent on lower-than-forecast data on manufacturing, industrial output and homebuilder confidence.

The S&P 500 slumped 1.7 percent to 1,265.42 at 4 p.m. in New York, trimming this year’s gain to 0.6 percent. The Dow Jones Industrial Average fell 178.84 points, or 1.5 percent, to 11,897.27. Both indexes dropped to the lowest levels since March. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against the S&P 500’s declines, surged 17 percent to 21.32.

“It’s a classic ‘risk-off’ day,” said Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees $859 billion. “They keep talking about kicking the can down the road in Europe. The can is getting heavier and heavier. The dollar-euro trade is on. The economy is in a slow patch. The weaker economic data should put some pressure on commodity prices.”

The S&P 500 has fallen 7.2 percent since this year’s high at the end of April amid concern about an economic slowdown. Energy, financial and raw material companies led the decline, falling at least 9 percent. The S&P 500 traded at 12.7 times forecast 2011 earnings, the lowest multiple in almost a year.

Global Stocks Slump

Stocks from Hong Kong to London and Sao Paulo slumped today as European officials failed to agree on a rescue plan for Greece. Greek Prime Minister George Papandreou will name a new government tomorrow and call a vote of confidence in parliament as he seeks to pressure rebel lawmakers to back the austerity plan that aims to secure a new bailout.

The European Central Bank said the threat of the Greek debt crisis spilling over into the banking sector is the biggest risk to the region’s financial stability.

“Greece could have a contagion effect,” ECB Vice President Vitor Constancio said at a briefing in Frankfurt today, when presenting the bank’s semi-annual Financial Stability Review. “That’s the reason why we are against any sort of default with haircuts and any form of private-sector event that could lead to a credit event or a rating event.”

Economic Data

Benchmark gauges also fell as a report showed that manufacturing in the New York region unexpectedly shrank in June, a sign the industry still faces parts shortages following the disaster in Japan. Another report showed that confidence among U.S. homebuilders slumped in June to the lowest level in nine months as executives turned more pessimistic on the outlook for sales, a sign that any pickup will take time to develop.

Separately, figures from the Federal Reserve showed that industrial production in the U.S. rose less than forecast in May. The cost of living in the U.S. increased more than forecast last month, reflecting higher prices for everything from autos to hotel rooms, another report showed.

“The market will sell first and ask questions later,” said Mark Luschini, chief investment strategist at Philadelphia- based Janney Montgomery Scott LLC, which manages $54 billion. “The latest figures are cementing this mushy patch of economic data. Unless we get a data point or two that stops showing erosion, the stock market will be under some pressure.”

Banks Sink

The KBW Bank Index fell 1.6 percent as 23 of its 24 stocks retreated. Wells Fargo, the largest U.S. home lender, dropped 1.7 percent to $26.55. Bank of America slid 2.8 percent to $10.50.

Gauges of energy and raw material producers in the S&P 500 declined at least 2.2 percent as the dollar rose, reducing the appeal of commodities as alternative investments. The Thomson Reuters/Jefferies CRB Index of 19 commodities decreased 2.3 percent. Alcoa, the largest U.S. aluminum producer, retreated 2.9 percent to $14.96. Exxon declined 2.1 percent to $78.66.

Ford Motor Co. decreased 2.1 percent to $13.15. The automaker said pretax profit will be lower in the second half than in the first half as the company faces rising structural and commodities costs.

Owens-Illinois Inc. dropped 14 percent to $25.54 for the biggest retreat in the S&P 500. The world’s biggest maker of glass bottles lowered its forecast for second-quarter profit margin because of higher costs and weaker demand in Australia, where it may idle a glass furnace.

Earnings Risk

J.C. Penney Co. slumped 3.5 percent to $34.12. The third- largest U.S. department-store chain has earnings risk over the next several quarters because of market share loss, excess inventory and the inability to raise prices in a cost inflationary environment, according to Morgan Stanley.

Pandora Media Inc. surged 8.9 percent to $17.42. The online-radio company gained as much as 63 percent on its first day of trading, a sign of accelerating demand for the limited number of Internet companies issuing shares.

The Oakland, California-based company leapt to $26 after its debut on the New York Stock Exchange, under the symbol P. It sold 14.7 million shares yesterday at $16 apiece, raising $234.9 million in its initial public offering. That was above the top of the range of $10 to $12.

--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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