Bloomberg News

U.S. Stocks Drop as Optimism About Spain Bailout Fades

June 11, 2012

U.S. Stocks Retreat as Optimism Over Spain Fades

Traders work at the New York Stock Exchange. Photographer: Scott Eells/Bloomberg

U.S. stocks fell, following the biggest weekly rally in the Standard & Poor’s 500 Index this year, as optimism over Spain’s bailout plan gave way to skepticism it will succeed in halting the debt crisis.

Equities extended losses as Apple Inc. (AAPL:US), the world’s most valuable company, slumped 1.6 percent after updating its MacBook line of laptops and announcing new iPhone features. Bank of America Corp. (BAC:US) and Morgan Stanley slid at least 2.4 percent. AK Steel Holding Corp. lost 14 percent as Goldman Sachs Group Inc. said there is “no relief in sight” for a drop in the metal.

The S&P 500 fell 1.3 percent to 1,308.93 at 4 p.m. New York time, after futures on the index surged as much as 1.5 percent following Spain’s request. It climbed 3.7 percent last week. The Dow Jones Industrial Average lost 142.97 points, or 1.1 percent, to 12,411.23. The Russell 2000 Index of small companies slid 2.4 percent. The Nasdaq Composite Index lost 1.7 percent. Trading volume for exchange-listed stocks in the U.S. was about 6.1 billion shares, 9.5 percent below the three-month average.

“The uncertainty remains,” John Carey, who helps oversee about $220 billion at Pioneer Investments in Boston, said in a telephone interview. “People are looking at the Spanish action as the first of what might be a number of steps or just a partial response to the needs of Europe’s debt crisis.”

Spain requested as much as 100 billion euros ($125 billion) of European bailout funds to shore up its banking system. The crisis in Spain, coinciding with the prospect of Greece leaving the euro after elections on June 17, roiled markets around the world, sending the euro to an almost two-year low on June 1 and pushing Spanish borrowing costs to near euro-era records.

Bear Market

European officials have failed to control the debt crisis that started in Greece at the end of 2009 and has now required a bailout of the euro area’s fourth-largest economy. Concern about a deepening of the region’s turmoil almost drove the S&P 500 into a bear market last year as the index tumbled more than 19 percent between April 29 and Oct. 3. Since then, the index surged as much as 29 percent to a four-year high in April. It’s down 7.8 percent from that peak.

“The Spanish deal is another Band-Aid,” said Matt McCormick, who helps oversee $6.2 billion at Bahl & Gaynor Inc. in Cincinnati. He spoke in a telephone interview. “Many investors are viewing this with skepticism. The problem is not going to be fixed by this amount. It’s not a solution, and people know the difference. Expect more volatility not less.”

Nine out of 10 groups in the S&P 500 retreated as financial, commodity and technology shares had the biggest declines. The Morgan Stanley (MS:US) Cyclical Index of companies most- tied to the economy sank 2.6 percent.

Apple Slumps

Apple dropped 1.6 percent to $571.17. It unveiled the next version of its mobile software, adding maps and integration with Facebook Inc., to extend its lead over Google Inc. in the market for handheld devices and downloadable applications. It also upgraded its MacBook computers, adding faster chips and sharper displays to the high-end Pro model months before competing devices with Microsoft Corp.’s Windows arrive on store shelves.

Facebook fell 0.4 percent to $27.01, after slumping for three straight weeks since it went public in May. Apple’s iOS 6 will have more than 200 new features, including turn-by-turn navigation and tools that make it easier to access Facebook (FB:US) from iPhones and iPads, Apple said today.

Nvidia Corp. (NVDA:US) gained 1.2 percent to $12.26. The MacBook Pros feature a graphics processor made by the company.

The KBW Bank Index (BKX) lost 2.3 percent, reversing an earlier gain of as much as 1.4 percent. Bank of America declined 3.7 percent to $7.28. Morgan Stanley lost 2.5 percent to $13.37.

Stress Tests

A group of U.S. bankers that advises the Federal Reserve urged the central bank last month to reduce the “uncertainty and confusion” posed by the most recent test of banks’ ability to weather financial turmoil, according to a memo released today.

Tension between banks and regulators has grown as agencies begin to implement new rules under the Dodd-Frank Act requiring banks to raise capital, curtail risk and rein in compensation. The Fed in March completed its most recent stress test, which it calls the Comprehensive Capital Analysis and Review or “CCAR,” and published its own test results for the 19 largest U.S. financial institutions.

AK Steel (AKS:US) paced a plunge in steelmakers. The shares fell 14 percent to $4.99, the lowest price since 2004. Sal Tharani, an analyst at Goldman Sachs, cut his rating to sell. Hot-rolled steel, a benchmark product used in autos and appliances, will fall below $600 a ton, he said in a note published yesterday.

‘No Sign’

“Gloomy industry fundamentals keep us on the sideline,” Tharani said. Goldman Sachs sees AK Steel falling to $5 in the next six months because of low steel prices and “no sign of a turnaround” in the electrical steel market.

U.S. Steel Corp. (X:US), the country’s largest producer of the metal by volume, retreated 6.5 percent to $17.89.

Green Mountain Coffee Roasters Inc. (GMCR:US), the maker of Keurig one-cup brewing machines and coffee pods, slumped 7.8 percent to $21.32. Kroger Co., the largest U.S. operator of grocery stores, plans to sell its own version of the pods used in Green Mountain’s Keurig brewers later this year, Keith Dailey, a spokesman for Cincinnati-based Kroger, said via e-mail today. The company may also make pods for other such brewers, he said.

Diamond Foods Inc. (DMND:US) slid 7.6 percent to $18.63. The maker of Kettle Chips and Emerald snack nuts said it won’t file its quarterly results on time to meet an extension granted by the Nasdaq Stock Market.

CEO Resigns

Omnicare Inc. decreased 8.9 percent, the most since Oct. 4, to $30.40. The supplier of drugs to nursing homes said Chief Executive Officer John Figueroa resigned, effective immediately. John Workman, Omnicare’s president and chief financial officer, will take over as interim CEO while the company looks for a permanent replacement. Figueroa, 49, had held the position for 18 months.

Health insurer Centene Corp. (CNC:US) tumbled 22 percent, the most since 2008, to $27.58 after cutting its profit forecast because of higher-than-expected medical costs.

Progress Energy Inc. (PGN:US) rallied 2.5 percent to $59.60, the highest price since at least 1980. Federal regulators conditionally approved Duke Energy Corp.’s proposal to ease market concentration, clearing the way for its acquisition.

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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  • AAPL
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