U.S. stocks fell the most since November, erasing the Dow Jones Industrial Average’s 2012 advance, as American employers added the fewest workers in a year and reports signaled global manufacturing was slowing.
All 10 groups in the Standard & Poor’s 500 Index retreated as the gauge extended a drop from its April high to 9.9 percent. The KBW Bank Index slumped 4.9 percent. Bank of America Corp. (BAC:US), Apple Inc. (AAPL:US) and Boeing Co. (BA:US) sank at least 2.9 percent. A measure of homebuilders in S&P indexes tumbled 7.8 percent. Newmont Mining Corp. rallied 6.7 percent as gold climbed the most since August on bets for measures to stimulate the U.S. economy.
The S&P 500 retreated 2.5 percent to 1,278.04 at 4 p.m. New York time. The benchmark measure fell below its average price of the past 200 days. The Dow slid 274.88 points, or 2.2 percent, to 12,118.57. About 8.4 billion shares changed hands on U.S. exchanges, or 24 percent above the three-month average.
“The weak jobs report confirms that the U.S. is vulnerable to a European situation that is going from bad to worse,” said Mohamed El-Erian, the chief executive officer of Pacific Investment Management Co., the world’s largest manager of bond funds. “The report’s details speak to an unemployment crisis that is getting more stubbornly embedded in the structure of the economy. Looking forward, the employment situation will be further challenged by an ongoing synchronized global slowing.”
Equities tumbled as U.S. payrolls climbed by 69,000 last month, less than the most-pessimistic forecast. The jobless rate rose to 8.2 percent. The Institute for Supply Management’s factory index fell after reaching a 10-month high. Manufacturing output shrank in Europe and slowed in China.
The Citigroup Economic Surprise Index for the U.S., which measures how much data is missing or beating the median estimates in Bloomberg surveys, fell to minus 53.6, the lowest since September. It turned negative this year in April after remaining above zero since October. The Federal Reserve announced a program dubbed “Operation Twist” to boost growth on Sept. 21, 2011, four months after the index turned negative.
Concern about a global economic slowdown and a worsening of Europe’s debt crisis took the S&P 500 down for two straight months. The gauge trimmed this year’s gain to 1.6 percent. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, surged 11 percent to 26.66, the highest since December.
The S&P 500 approached a level which would represent a 10 percent decline from this year’s peak in April. The benchmark gauge traded at 12.9 times reported profits, according to data compiled by Bloomberg. That’s 21 percent below its five-decade average of 16.4. Earnings (SPX) in the S&P 500 are forecast to reach a record $104.74 a share in 2012.
“People are going to find value,” said John Lynch, the Charlotte-based regional chief investment officer for Wells Fargo Private Bank. His firm manages $169 billion. “Given what we know, I don’t see anything worse than a 10 percent correction nor do I see a recession being priced in. Profits are at a record. That’s an opportunity for the longer-term investor.”
Yet technical analysts say the S&P 500’s drop below its 200-day moving average could be a harbinger of losses. It’s a “shot to the bulls,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research in Cincinnati. The next level of support for the gauge is 1,257, he said.
The Morgan Stanley Cyclical Index of companies most-tied to economic growth tumbled 3.6 percent. Bank of America lost 4.5 percent to $7.02. Apple sank 2.9 percent to $560.99. Boeing slid 3.4 percent to $67.24. Yum! Brands Inc. (YUM:US), which got about 44 percent of revenue last year from stores in China, sank 8 percent to $64.70.
A measure of homebuilders in S&P indexes tumbled the most since August. PulteGroup Inc. (PHM:US) slumped 12 percent to $8.26. D.R. Horton Inc. sank 8.4 percent to $15.21.
Casino companies dropped as Macau casino gambling revenue rose 7.3 percent in May, the slowest pace since July 2009, matching analysts’ estimates. Wynn Resorts Ltd. (WYNN:US), the casino company founded by billionaire Steve Wynn, dropped 5.5 percent to $97.38. Las Vegas Sands Corp. (LVS:US) lost 7 percent to $42.97.
Facebook Inc. (FB:US) fell 6.4 percent to $27.72, after yesterday posting the biggest gain since its initial public offering. The company led U.S. IPOs to their worst monthly performance since Lehman Brothers Holdings Inc. collapsed, as Europe’s debt crisis scuttled IPO plans from New York to Hong Kong.
The Bloomberg IPO Index (BIPO), which tracks U.S. equities in the first year after their IPOs, sank 15 percent last month, with Facebook posting the worst one-week performance among the 30 largest U.S. IPOs since 2011. The index’s drop is in line with the drop in October 2008, the month after Lehman’s bankruptcy triggered the worst financial crisis since the Great Depression.
Groupon Inc. (GRPN:US) retreated 8.9 percent to $9.69. The largest daily coupon website declined as a lockup period expired, permitting insiders to sell shares.
New York Times Co. (NYT:US) and Gannett Co. fell as Moody’s Investors Service said the industry’s earnings will continue to shrink this year. New York Times slid 4.4 percent to $6.36. Gannett, owner of the USA Today, sank 5.6 percent to $12.33.
Vera Bradley Inc. plunged 9.4 percent to $19.81, the lowest price since its market debut in October 2010. (VRA:US) Citigroup Inc. and Jefferies & Co. downgraded the stock following a lower annual sales forecast by the maker of printed quilted handbags.
Gold producers jumped as signs of weakening job growth in the U.S. fueled expectations that the Fed will take further steps to spur growth, boosting the appeal of the precious metal as an inflation hedge. Newmont Mining (NEM:US), the largest U.S. gold producer, rallied 6.7 percent to $50.30.
The Fed is more likely to provide added stimulus when its current effort winds down, according to Morgan Stanley. The probability of more central bank policy action is 80 percent, up from 50 percent, the firm said. The Fed purchased $2.3 trillion of debt in two rounds of quantitative easing that have become known as QE1 and QE2. The FOMC meets June 20. “Operation Twist” ends this month.
“We’re guessing that at the end of Operation Twist this month, if we continue to see statistics like this, it will take a very short span of time before the Fed either does another Operation Twist or another QE3,” said Michael Mullaney, who helps manage $9.5 billion as chief investment officer at Fiduciary Trust in Boston. He spoke in a phone interview.
Economists at JPMorgan Chase & Co. in New York reduced their forecast for third-quarter U.S. economic growth, citing the slowdown in hiring and the global economy. The world’s largest economy will expand at a 2 percent annual rate from July through September, down from a previous estimate of 3 percent, chief U.S. economist Michael Ferolisaid in an e-mail.
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