Bloomberg News

U.S. Stocks Fall After Facebook IPO; Treasuries Decline

May 18, 2012

Traders work on the floor of the New York Stock Exchange. Photographer: Michael Nagle/Bloomberg

Traders work on the floor of the New York Stock Exchange. Photographer: Michael Nagle/Bloomberg

U.S. stocks slid, extending the biggest weekly loss since November, as Facebook (FB:US) Inc.’s record initial public offering failed to boost confidence in a market rattled by Europe’s debt crisis. Treasuries dropped while the Dollar Index retreated after a record 14 straight gains.

The Standard & Poor’s 500 Index slipped 0.7 percent to 1,295.22 at 4 p.m. in New York, extending its weekly drop to 4.3 percent and dipping below 1,300 for the first time since January. Facebook rose 0.6 percent from its $38 offering price, paring a gain of as much as 18 percent. Treasury 10-year yields increased two basis points to 1.72 percent after falling to about two basis points above a record. Oil lost 1.2 percent to a six-month low and copper erased its gain for the year.

U.S. equities rallied in early trading after market makers in Germany quoted bids for Facebook at around $70 a share, spurring speculation that the IPO would inspire confidence in stocks and distract attention from Europe’s debt crisis. Group of Eight leaders prepared to meet to discuss Europe’s debt crisis as global stocks capped their worst week in eight months.

“It’s tough to live up to the hype,” said Matt McCormick, who helps oversee $6.2 billion at Bahl & Gaynor Inc. in Cincinnati. “There’s been a tremendous amount of hype with Facebook. People were expecting a bigger pop in the stock. After they didn’t get it or they didn’t get it to the extent that they wanted, they started to focus on the rest. There’s concern about Europe and many people don’t want to be long over the weekend.”

Bankhaus Main, making a market for Facebook shares in Frankfurt before the official start of trading, quoted the orders at the equivalent of $70 a share, said Gerion Weber, head of lead brokerage at the firm, before the stock started trading at 11:30 a.m. New York time.

Nasdaq Issues

The pricing of the first Facebook transaction following yesterday’s $16 billion stock sale took a half hour longer than Nasdaq OMX Group Inc. planned. About 40 minutes later, the second-largest U.S. equities exchange operator said it was investigating an issue in reporting trades from the opening auction back to the brokerages that made them. Nasdaq later said it delivered the messages to customers. The Securities and Exchange Commission said it will review the problems.

Facebook’s underwriters purchased the company’s stock to keep it from falling below the offering price of $38, people with knowledge of the matter said.

Social Shares Slump

Shares of other social-networking companies retreated after Facebook started trading. Groupon Inc. (GRPN:US), the online-coupon provider, tumbled 6.7 percent and LinkedIn Corp., the professional-networking site, dropped 5.7 percent. Zynga Inc. (ZNGA:US), which makes games played on Facebook, closed down 13 percent after setting off single-stock circuit breakers meant to halt trading to reduce volatility. Nasdaq OMX Group Inc. shares fell 4.4 percent, the most since October.

Hewlett-Packard Co., DuPont Co. (DD:US), Chevron Corp. lost at least 1.7 percent to lead the Dow Jones Industrial Average down 73.11 points to 12,369.38 as the 30-stock gauge sank to the lowest since Jan. 6 and trimmed its 2012 gain to 1.2 percent. The Nasdaq Composite Index lost 1.2 percent to extend its decline from this year’s high to 11 percent.

The S&P 500 has tumbled almost 9 percent from its four-year high in April and about $4 trillion has been erased from global equities this month amid renewed concern about Europe’s debt crisis and disappointing economic data. Technology, financial and health-care led losses among the 10 main industry groups today, while telephone stocks were the only group to gain.

The slump has pushed a gauge of market momentum to levels last seen in August, a sign to some traders that the S&P 500 fell too far, too fast. The 14-day relative strength index for the S&P 500 slid today to 23.25. The RSI, which measures the degree to which gains and losses outpace each other, has been below 30 for three consecutive days. Readings that low are considered signs to buy by some analysts who use charts to make forecasts.

Commodities

Nickel, soybeans and sugar lost at least 1.9 percent to lead the S&P GSCI Index of 24 commodities down 0.2 percent, extending its 2012 drop to 2.4 percent. Losses in the index where limited as natural gas rallied to a four-month high as forecasts for warmer weather into June signaled increased demand from power plants. Wheat extended this week’s gain to 16 percent, its biggest rally since 2007, on speculation that dry weather in the U.S. and the Black Sea region will limit production.

Dollar, Euro

The U.S. currency was mixed against 16 major peers and the Dollar Index slipped 0.3 percent after a 14-day rally sent it to the highest level in four months. The euro increased 0.6 percent to $1.2773, rebounding from the lowest level since January.

Hedge funds and other large speculators increased their bets on a weaker euro to 173,869 in the week ended May 15, the highest since the common currency’s inception in 1999, according to Commodity Futures Trading Commission data

Treasury 10-year yields rose as investors bet price gains were overdone before the U.S. sells $99 billion of coupon- bearing debt next week.

Benchmark notes rose for a ninth straight week, the longest streak since 1998. The 10-year yield dropped earlier as Europe’s resurgent debt crisis boosted demand for the perceived safety of U.S. debt. The seven-year note yield touched a record low 1.135 percent before turning higher.

Bonds Versus Stocks

Corporate bonds are approaching the priciest on record relative to stocks as Europe’s fiscal turmoil and concern that economic growth is faltering stoke demand for the perceived safety of U.S. company debt. Buyers accepting bond yields at about all-time lows for investment-grade companies are getting about 4 percentage points less than the current earnings yield of 7.6 percent for the S&P 500, according to data compiled by Bloomberg. That’s the biggest gap since the measure reached a record in October.

The Stoxx Europe 600 Index (SXXP) slipped 1.1 percent. Volkswagen AG and Porsche SE lost at least 2 percent to lead automakers to the biggest decline among 19 groups in the index.

German Finance Minister Wolfgang Schaeuble said turmoil in the financial markets caused by Europe’s debt crisis may last another two years, as G-8 leaders prepared to discuss Greece and its impact on the global economy.

“We are potentially reaching a sentiment bottom but also an hour of reckoning” for policymakers, said Jonathan Plant, a trader at Liberum Capital Ltd. in London. “European leaders must address whether it is time to extend quantitative measures or facilitate debt write-downs.”

Spain Rebounds

Spain’s IBEX 35 Index (IBEX) rose 0.4 percent, rebounding from a nine-year low, even after Moody’s Investors Service lowered debt ratings at 16 Spanish banks, confirming reports yesterday that helped drag equities lower.

Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria SA, Spain’s biggest lenders which were both cut three levels by Moody’s, climbed at least 3 percent. The shares erasing earlier losses as Cinco Dias reported that Spanish banks are calling for a reintroduction of a ban on short selling of financial stocks. Bankia SA, the publicly traded arm of the banking group taken over by the Spanish government last week, jumped 23 percent, rebounding from 10 days of losses.

The MSCI Emerging Markets Index (MXEF) slumped 1.5 percent and lost 6.6 percent for the week, its worst loss since September. The MSCI BRIC Index of the biggest emerging markets lost 0.7 percent, leaving the measure down 21 percent from this year’s peak.

To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; 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

  • FB
    (Facebook Inc)
    • $74.82 USD
    • 0.96
    • 1.29%
  • GRPN
    (Groupon Inc)
    • $6.8 USD
    • 0.16
    • 2.35%
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