Bloomberg News

S&P 500 Caps Longest Slump in 1 Month on Europe Concerns

May 16, 2012

Ten-year note yields climbed from a seven-month low as U.S. builders broke ground on more homes than forecast in April. Photographer: George Frey/Bloomberg

Ten-year note yields climbed from a seven-month low as U.S. builders broke ground on more homes than forecast in April. Photographer: George Frey/Bloomberg

The Standard & Poor’s 500 Index (SPX) dropped a fourth day, the longest decline in a month, as concern Greece’s debt crisis is worsening offset better-than-estimated reports on U.S. housing starts and industrial production.

Financial stocks fell the most in the S&P 500 among 10 groups as Bank of America Corp. (BAC:US) and JPMorgan (JPM:US) Chase & Co. sank at least 2.1 percent. Alcoa Inc. (AA:US) slid 2.5 percent as commodities retreated after the Dollar Index rose for a record 13th straight day. J.C. Penney Co. (JCP:US) tumbled 20 percent, the biggest drop ever, on disappointing results. General Motors Co. (GM:US) rose 2.3 percent as Berkshire Hathaway Inc. disclosed a stake in the automaker.

The S&P 500 retreated 0.4 percent to 1,324.80 at 4 p.m. New York time, reversing an earlier advance of as much as 0.8 percent. The Dow Jones Industrial Average decreased 33.45 points, or 0.3 percent, to 12,598.55, the lowest level since Jan. 18. About 7.6 billion shares changed hands on U.S. exchanges today, or 15 percent above the three-month average.

“The situation in Europe is extremely precarious,” said Barry Knapp, the New York-based head of U.S. equity strategy at Barclays Plc. “More needs to be done. You can’t have a lot of confidence that assets will stabilize.”

Concern about Europe’s crisis drove the S&P 500 down 2.4 percent in four days and trimmed this year’s gain in the gauge to 5.3 percent. The European Central Bank said it will temporarily stop lending to some Greek banks to limit its risk as President Mario Draghi signaled the ECB won’t compromise on key principles to keep Greece in the euro area.

Economic Data

Equities rose earlier today as economic data bolstered optimism the U.S. could withstand fallout from Europe. Several Federal Reserve policy makers said a loss of momentum in growth or increased risks to their economic outlook could warrant additional action to keep the recovery going, minutes of their last meeting showed.

“Several Fed members are now saying more action may be needed, but they are not taking action,” said Peter Jankovskis, who helps manage about $2.9 billion at Oakbrook Investments in Lisle, Illinois. “Certainly the situation in Greece is troublesome. It’s getting to a point where it gets harder and harder to envision Greece staying within the euro.”

Eight out of 10 groups in the S&P 500 retreated today as financial (S5FINL) and raw material indexes lost at least 1.1 percent. The Morgan Stanley Cyclical Index of companies most-tied to the economy fell 1 percent. Alcoa, the largest U.S. aluminum producer, sank 2.5 percent to $8.49. Bank of America decreased 2.6 percent to $7.11. JPMorgan slid 2.2 percent to $35.46.

Shareholder Suits

JPMorgan’s shareholders sued the bank and Chief Executive Officer Jamie Dimon in two separate cases over the company’s $2 billion trading loss. The bank continues to employ Bruno Iksil, the trader known as the London Whale whose positions may have distorted prices in some derivatives markets. Brian Marchiony, a spokesman for the New York-based firm, confirmed Iksil’s status. The New York Times reported earlier that Iksil is leaving JPMorgan by the end of this year.

J.C. Penney slumped 20 percent, the most in the S&P 500, to $26.75. The department-store chain led by Apple Inc.’s former retailing chief reported a first-quarter loss (JCP:US) and sales that fell more than analysts projected.

Abercrombie & Fitch Co. (ANF:US) dropped 13 percent to $39.50, the lowest level since October 2010. The operator of namesake and Hollister stores reported first-quarter revenue that missed (ANF:US) analysts’ estimates and said same-store sales will decline this fiscal year amid weakness in Europe.

Staples Inc. (SPLS:US) decreased 5.7 percent to $13.91. The largest office-supply retailer reported first-quarter sales of $6.1 billion, missing the average analyst estimate of $6.19 billion.

Warren Buffett

Some car companies and auto-parts suppliers gained as Warren Buffett’s firm said it had 10 million shares of GM on March 31 and Goldman Sachs Group Inc. said the industry has “significant” potential to gain from volume and margin growth. GM rose 2.3 percent to $21.91. Goodyear Tire & Rubber Co. (GT:US), the biggest U.S. tiremaker, added 4.9 percent to $10.69.

General Electric Co. climbed 3.3 percent to $19. Its finance unit will resume payouts to the parent company that were suspended in 2009 (GE:US) during a freeze in credit markets. Restarting the dividend is a milestone in GE Capital’s recovery from the financial crisis, when the unit suffered $32 billion of credit losses and received capital infusions from the parent.

Legg Mason Inc. (LM:US) jumped 7.5 percent, the biggest gain in the S&P 500, to $24.05. The money manager with 18 straight quarters of net redemptions plans to issue debt to help repurchase $1.25 billion of bonds from private-equity firm KKR & Co.

Facebook’s IPO

Facebook Inc. (FB:US) investors such as Accel Partners and Goldman Sachs Group Inc. increased the number of shares they’re selling in the social network’s initial public offering, boosting the sale to as much as $16 billion.

Existing holders will offer 241.2 million (FB:US) shares, bringing the total on offer to 421.2 million, a regulatory filing today shows. Accel, the biggest seller in the IPO, raised the amount it’s selling by 28 percent, while Goldman Sachs more than doubled its shares on offer.

Facebook, girding for the largest-ever IPO of a technology company, yesterday boosted the offering’s price range to as much as $38 a share, indicating a market value as high as $104 billion. While the expanded IPO may mean the appetite for shares is strong, insiders’ decision to pare holdings further may heighten some investors’ concern over Facebook’s earnings growth, said Greenwood Capital’s Walter Todd.

‘Wonder Why’

“If the demand wasn’t there, they wouldn’t have upsized the deal,” said Todd, who oversees about $940 million as chief investment officer at the Greenwood, South Carolina-based firm. “On the other hand, when you see insiders unloading their stakes, you start to wonder why. I could see it turning some institutional investors off.”

Investors will be able to avoid losses in the broader equity market this year by buying stocks with larger-than- average dividends, said David Kostin, chief U.S. equity strategist at Goldman Sachs Group Inc.

“The scarcest commodity in the world is yield,” the New York-based strategist said in a radio interview today on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “You have negligible returns” in most asset classes. “Where are you getting any income? You are going to get it in the form of dividends.”

Kostin has a year-end projection for the equities gauge of 1,250, according to a weekly survey by Bloomberg News. The S&P 500 has a dividend yield of 2.13 percent, according to Bloomberg data. Ten-year Treasuries yield 1.76 percent.

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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Companies Mentioned

  • BAC
    (Bank of America Corp)
    • $16.91 USD
    • 0.10
    • 0.56%
  • JPM
    (JPMorgan Chase & Co)
    • $59.26 USD
    • -0.52
    • -0.87%
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