Bloomberg News

U.S. Stocks Drop After Job Report, Paring Weekly Gain

July 08, 2011

(Corrects superlative on two-week advance in third paragraph.)

July 8 (Bloomberg) -- U.S. stocks sank, pulling down the Standard & Poor’s 500 Index from a two-month high, as the weakest American job growth in nine months hurt companies most tied to the economy.

Financial and industrial companies led losses among 10 S&P 500 groups, dropping more than 1.2 percent. General Electric Co. and Bank of America Corp. fell at least 1.6 percent, the most in the Dow Jones Industrial Average, after the Labor Department reported job growth that was about one-sixth the median economist forecast. Google Inc. lost 2.7 percent as Morgan Stanley downgraded the shares.

The S&P 500 dropped 0.7 percent to 1,343.80 at 4 p.m. in New York, after falling as much as 1.4 percent. The index rose 0.3 percent this week, extending its two-week rally to 5.9 percent, the most since October 2009. The Dow Jones Industrial Average lost 62.29 points, or 0.5 percent, to 12,657.20 today.

“The report is exceedingly disappointing,” said Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion. “It fell short of just about everyone’s expectations and it certainly has to disappoint equity investors. It wasn’t just a miss, it was a complete whiff.”

The S&P 500 Index retreated from within 0.8 percent of a three-year high after U.S. payrolls increased by 18,000 in June, less than the most pessimistic forecast in a Bloomberg News survey of economists, which called for growth of 105,000 on average. The jobless rate rose to a 2011 high of 9.2 percent.

Cyclical Trend

Losses in companies reliant on economic growth today represented a reversal from the past three weeks. The Morgan Stanley Cyclical Index tracking manufacturers, commodity producers and transportation stocks rose 10 percent between June 16 and yesterday, beating the Morgan Stanley Consumer Index of drugmakers and grocers by 6.6 percentage points. Amid concern the debt crisis in European nations including Greece would slow global growth, the consumer index outperformed the cyclical index by 9.7 points between Feb. 17 and June 16.

The S&P 500 had climbed 6.7 percent since the start of last week as Greek lawmakers passed a five-year austerity package, qualifying the country for further aid, and yesterday’s report from ADP Employer Services showed U.S. companies added twice as many jobs as forecast in June.

The Morgan Stanley index of 30 cyclical stocks slumped 1.1 percent today, reversing two days of gains. Financial and industrial stocks lost 1.3 percent and 1.2 percent, respectively, the most among 10 industries in the S&P 500. Shares of commodity companies slipped 0.7 percent.

BofA, GE

Bank of America declined 2 percent to $10.70 and General Electric Co. fell 1.6 percent to $18.99 for the biggest losses in the Dow. Cisco, the world’s largest maker of networking equipment, slumped 1 percent to $15.74. Caterpillar Inc., the world’s largest maker of construction equipment, dropped 1.1 percent to $110.41.

Staffing companies declined after the U.S. job report showed that hiring by companies was the weakest since May 2010. Monster Worldwide Inc. sank 3.2 percent to $14.65. Manpower Inc. dropped 4.3 percent to $56.13.

“It means that we’re still a ways off from getting to where we should be,” Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., said in an interview from Sun Valley, Idaho, with Bloomberg Television’s Betty Liu on the “In the Loop” program. “How fast the recovery will come, I don’t know. I see nothing that indicates any kind of a double dip.”

Earnings Season

The job report damped optimism about prospects for profit growth before the second-quarter reporting period starts next week. The earnings season unofficially kicks off on July 11 with Alcoa Inc., the first Dow company to release results. Corporate profits are forecast to have grown by 13 percent in the period, the smallest increase in two years, according to analyst estimates compiled by Bloomberg.

“We’ve had a very benign earnings pre-season without a lot of negative earnings warnings,” said Tim Hoyle, director of research at Radnor, Pennsylvania-based Haverford Trust, which manages $6.5 billion. “We remain positive on second-quarter earnings,” he said. “But if the jobs situation continues to be weak as it has been in the last two months, then there’s definitely going to be a downward revision.”

President Barack Obama said the job report shows that “we still have a long way to go and a lot of work to do to give people the security and opportunity they deserve.”

“We still have a big hole to fill” in replacing jobs lost during the recession, Obama said in a statement from the White House Rose Garden.

Google, ADM, Yahoo

Google dropped 2.7 percent to $531.99 after the world’s biggest search engine had its analyst rating cut to “equal weight” from “overweight” at Morgan Stanley, which cited the risk of declining profit margins in 2011 and 2012 because of higher employee compensation costs and the uncertainty over the return on investments in social media.

Archer Daniels Midland Co. rose 1.9 percent to $31.04. Buffett may look at the world’s largest grain processor as Berkshire Hathaway seeks more acquisitions. ADM, based in Decatur, Illinois, is the “kind of company we look at,” Buffett said. General Dynamics Corp. and Exelon Corp. are also the types of companies he finds attractive, Buffett said in the Bloomberg Television interview.

Yahoo! Inc. slipped 1.3 percent to $15.61. Greenlight Capital Inc., the hedge fund run by David Einhorn, sold its stake in the Internet company for a “modest loss” over doubts surrounding the value of the company’s investment in China-based Alibaba Group Holding Ltd. Yahoo, Alibaba’s biggest investor, has lost 15 percent since May 10, the last day of trading before the Alibaba transaction was disclosed.

--With assistance from Brooke Sutherland in New York and Alexis Xydias in London. Editor: Nick Baker

To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net.

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


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