Bloomberg News

S&P 500 Falls for 3rd Week in Longest Slump Since August

May 19, 2012

U.S. stocks tumbled for a third week, pushing the Standard & Poor’s 500 Index to its longest losing streak since August, amid concern global economic growth is slowing and Greece may leave the euro area.

All 10 industries in the S&P 500 fell. Financial and raw- material companies dropped at least 6.5 percent as shareholders sued JPMorgan Chase & Co. (JPM:US) over the company’s $2 billion trading loss and the Dollar Index’s longest rally ever reduced the prices of commodities. J.C. Penney Co. and Abercrombie & Fitch Co. (ANF:US) each plunged 23 percent after reporting sales that missed analysts’ estimates. Facebook Inc. climbed 0.6 percent in its trading debut, erasing most of an 18 percent rally.

The S&P 500 tumbled 4.3 percent to 1,295.22, the biggest retreat since November. The index sank 7.7 percent over three weeks, trimming its 2012 gain to 3 percent. The Dow Jones Industrial Average slipped 451.22 points, or 3.5 percent, to 12,369.38, the lowest level since Jan. 6. The Nasdaq Composite Index (CCMP) plunged 5.3 percent, the most since September, to 2,778.79, extending its loss from a March high to 11 percent.

“We sort of hit an air pocket in terms of positive catalysts and meanwhile Europe keeps weighing on the market,” John Kattar, chief investment officer at Eastern Investment Advisors in Boston, which manages $1.7 billion, said in a phone interview. “It was a very good earnings season, but that catalyst is behind us.”

Bear Market

Global equities slumped, with the MSCI BRIC Index (MXBRIC) that tracks stocks in Brazil, Russia, India and China entering a bear market, with a drop of more than 20 percent from this year’s peak. Fitch Ratings cut Greece’s credit rating on concern the country won’t be able to stay in the euro area after inconclusive elections left the country without a stable government. U.S. reports sent mixed signals, with housing starts and industrial production topping estimates while manufacturing in the Philadelphia region unexpectedly shrank.

The S&P 500’s retreat in May is almost four times worse than 2011. More than $1.14 trillion has been erased from American equity values this month, according to data compiled by Bloomberg. That compares with about $299 billion in the 14 days after April 29, 2011, when the index reached its highest level in three years.

Faltering stocks, reports showing weaker economic growth and concern about the health of countries from Spain to Italy is reminding investors of 2011, one of the most volatile years on record as the S&P 500 dropped as much as 19 percent. Investors bracing for a retreat pulled $18 billion from U.S. equity mutual funds last month, the most since at least 1984, according to the Investment Company Institute.

VIX Jumps

The Chicago Board Options Exchange Volatility Index, known as the VIX (VIX), jumped 26 percent for the week, the most since September, to 25.10. The index, which measures the cost of using options as insurance against declines in the S&P 500, has risen for six straight trading days.

“The market is struggling,” John Praveen, chief investment strategist at Prudential International Investments Advisers, a unit of Prudential Financial Inc., which manages $943 billion in assets, said in a phone interview. “Investors are extremely nervous about what’s going on in Europe.”

JPMorgan tumbled 9.4 percent, the most in the Dow, to $33.49. Chief Executive Officer Jamie Dimon agreed to testify before a Senate committee on the bank’s loss as lawmakers debate whether to tighten rules on trading by U.S. lenders. Dimon announced the loss May 10, assailing his firm’s handling of trading in synthetic credit positions as “flawed, complex, poorly reviewed, poorly executed and poorly monitored.”

Eight Weeks

Bank of America Corp. (BAC:US) slid 7 percent to $7.02 for an eighth consecutive weekly decline, the longest run since at least 1980.

The S&P 500 Materials Index (S5MATR) fell for nine consecutive days, the longest losing streak since September 2000, as the Dollar Index rose for a record 14 straight sessions through May 17.

U.S. Steel Corp. plunged 17 percent to $21.56 as hedge-fund manager David Einhorn said at the Ira Sohn conference that he’s not in favor of the steelmaker. Steel prices will continue to fall because of a glut of supply, Anthony Rizzuto, an analyst with Dahlman Rose & Co., wrote in a note on May 15.

Allegheny Technologies Inc. (ATI:US), a specialty-metals producer, declined 16 percent to $33.18.

Retailers Slump

J.C. Penney slumped 23 percent, the most since October 2008 and the biggest decline in the S&P 500, to $26.29. The department-store chain led by Apple Inc.’s former retailing chief reported a first-quarter loss and sales that fell more than analysts projected.

Abercrombie & Fitch sank 23 percent to $35.89, the lowest level since September 2010. The operator of its namesake and Hollister stores reported first-quarter revenue that missed analysts’ estimates and said same-store sales will decline this fiscal year amid weakness in Europe.

Facebook (FB:US) rose 0.6 percent to $38.23 in its debut on the last day of the week. That compares with Carlyle Group LP’s 0.2 percent day-one increase on May 3, and pales in contrast with Google Inc.’s 18 percent jump in its 2004 initial public offering. Underwriters bought Facebook’s stock to keep it from falling below the IPO price, people with knowledge of the matter said.

Facebook raised $16 billion in the largest IPO on record for a technology company. The offering valued the company at 107 times trailing 12-month earnings, more than every S&P 500 member except Amazon.com Inc. and Equity Residential.

Wal-Mart Stores Inc. (WMT:US) advanced 5.1 percent, the most in the Dow, to $62.43. The world’s largest retailer reported first- quarter profit that topped analysts’ estimates as its low prices increased customer traffic and boosted sales.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

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


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Companies Mentioned

  • JPM
    (JPMorgan Chase & Co)
    • $61.34 USD
    • 1.03
    • 1.68%
  • ANF
    (Abercrombie & Fitch Co)
    • $40.9 USD
    • -0.41
    • -1.0%
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