Bloomberg News

U.S. Stocks Fall as Employment Data Fuels Recession Concerns

September 03, 2011

Sept. 3 (Bloomberg) -- U.S. stocks fell this week as the Standard & Poor’s 500 Index posted its biggest monthly decline in more than a year and a report showing employment stagnated in August fueled concern the economy may slip into a recession.

Bank of America Corp. and JPMorgan Chase & Co. lost at least 4.4 percent as the Federal Housing Finance Agency sued lenders over residential mortgage-backed securities. AT&T Inc. declined 3.4 percent after the government sued to prevent its planned purchase of T-Mobile USA Inc. First Solar Inc. dropped 11 percent after the International Energy Agency said the price of solar power may fall.

The S&P 500 fell 0.2 percent to 1,173.97 this week as a 2.5 percent slide on the last day wiped out gains from earlier in the week. The Dow Jones Industrial Average decreased 44.28 points, or 0.4 percent, to 11,240.26. Both gauges posted their biggest monthly losses since May 2010 in August.

“There’s a lot of emotion in the market,” William Fries, the Santa Fe, New Mexico-based manager of the $26 billion Thornburg International Value Fund, said in a telephone interview. “The employment numbers were not encouraging. I’m not ready to concede that we have a double dip but we’re certainly heading into a period of slower growth and that’s not good for stocks.”

This week’s retreat was triggered by government data showing U.S. payrolls were unchanged in August, the weakest reading since September 2010. The median forecast in a Bloomberg News survey called for an increase of 68,000. Hourly earnings and hours worked both declined. The August data included a 48,000 drop in information industry jobs, mostly reflecting striking Verizon Communications Inc. workers.

‘Everyone Is Worried’

“Everyone is worried about the state of the economy and whether we entered a recession in August, and data like this will lead some to believe that we did,” Dan Greenhaus, chief global strategist at BTIG LLC in New York, said in a telephone interview. “That of course bodes ill for equity prices.”

The S&P 500 slid as much as 18 percent from a three-year high on April 29 amid concern the economy was weakening. Stocks rebounded at the end of the month as Federal Reserve Chairman Ben S. Bernanke said in an Aug. 26 speech in Jackson Hole, Wyoming, that the central bank has tools to stimulate growth without signaling he will use them. He echoed comments from dissenting members of the Federal Open Market Committee who said data aren’t pointing to a recession.

Concern that the S&P 500 will plunge amid slowing earnings growth are overblown, according to Liz Ann Sonders of Charles Schwab Corp.

‘Fall Out of Bed’

“There is this misperception that the minute the peak of earnings happens, the market is going to fall out of bed,” Sonders, New York-based chief investment strategist at Charles Schwab, said in a radio interview this week on “Bloomberg Surveillance” with Tom Keene. “The market tends to continue to fare pretty well unless you get some sort of massive collapse in earnings, which I don’t think is in the cards this time.”

Equities climbed earlier this week, including a 2.8 percent surge in the S&P 500 on Aug. 29, after reports showed Americans’ spending increased more than economists forecast and incomes grew at the projected pace. Benchmark gauges also rose as two Greek banks, EFG Eurobank Ergasias SA and Alpha Bank SA, discussed merging.

Financial and telephone stocks were the worst performers out of 10 groups in the S&P 500, with each group losing at least 1.5 percent. Gauges of utility, health-care and consumer-staples companies climbed at least 0.6 percent for the best performances.

Bank Suits

Bank of America lost 6.6 percent to $7.25 and JPMorgan retreated 4.4 percent to $34.63 as reports of pending federal lawsuits triggered the stocks’ biggest losses of the week on Sept. 2. The two banks and Citigroup Inc. were among the 17 lenders sued by the Federal Housing Finance Agency for allegedly misleading Fannie Mae and Freddie Mac about billions of dollars of residential mortgage-backed securities.

The KBW Bank Index of 24 stocks slid 2.9 percent this week.

Charlotte, North Carolina-based Bank of America also declined earlier this week after the Federal Deposit Insurance Corp. objected to the lender’s proposed $8.5 billion mortgage- bond settlement with investors.

Goldman Sachs Group Inc. slumped 4.2 percent to $107.06 after also agreeing to pay future Federal Reserve penalties and write down $53 million of mortgage loans in New York to gain approval for its sale of Litton Loan Servicing LP. The Fed ordered Goldman Sachs to conduct an independent review of Litton’s foreclosures in 2009 and 2010 to address a “pattern of misconduct and negligence,” the regulator said in a statement.

AT&T Slumps

AT&T slumped 3.4 percent to $28.05. The U.S. government sued to block the Dallas-based company’s proposed $39 billion acquisition of T-Mobile, saying the deal would “substantially lessen competition” in the wireless market. The purchase would combine the second- and fourth-largest mobile-phone carriers in the country.

First Solar lost 11 percent to $90.10, the biggest weekly decline in the S&P 500. The price of solar power may fall to about $100 per megawatt-hour by 2030, the IEA said.

SAIC Inc. retreated 10 percent to $12.94. The defense contractor reported fiscal second-quarter earnings that were below analysts’ estimates and cut its revenue forecast for the year ending Jan. 31, 2012, to no more than $11 billion from as much as $11.5 billion, on a slowdown in U.S. government contracts.

VIX Retreats

The Chicago Board Options Exchange Volatility Index, the benchmark measure of U.S. equity derivatives, fell 4.7 percent to 33.92 this week following a fourth straight monthly increase. The VIX, as the measure is known, jumped 50 percent to 48 on Aug. 8 for the biggest jump since February 2007. The VIX has averaged about 20.44 over its 21-year history.

“I don’t think the market can find a stable floor until we see some turn in the areas of greatest uncertainty,” Eric Teal, chief investment officer at First Citizens Bancshares Inc., which manages $4 billion in Raleigh, North Carolina, said in a telephone interview. “It continues to be extremely volatile as issues, including housing, unemployment, the European debt crisis and the U.S. deficit issues, don’t get resolved.”

--With assistance from Rita Nazareth, Jeff Kearns and Lu Wang in New York. Editors: Michael P. Regan, Joanna Ossinger

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net

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


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