Bloomberg News

U.S. Stocks Fall Amid Europe Concern

July 23, 2012

U.S. Stocks Decline on Concern Europe Debt Crisis Is Worsening

Stocks joined a global slump before the arrival in Athens tomorrow of Greece’s troika of international creditors -- the European Commission, the European Central Bank and the International Monetary Fund. Photographer: Richard Drew/AP Photo

U.S. stocks declined, sending the Standard & Poor’s 500 Index down for a second day, amid concern Europe’s debt crisis is deepening and after a Chinese central- bank adviser said the nation’s economic growth may slow further.

All 10 S&P 500 groups fell as commodity shares had the biggest losses. The Bloomberg China-US Equity Index (CH55BN) of the most- traded Chinese shares in the U.S. sank 2.1 percent. McDonald’s (MCD:US) Corp. slid 2.9 percent as profit (MCD:US) trailed estimates. S&P 500 (SPXL1) futures expiring in September lost 0.4 percent to 1,338.30 at 5:53 p.m. New York time as Moody’s Investors Service lowered the outlooks for Germany, the Netherlands and Luxembourg.

About five stocks fell for each rising on U.S. exchanges. The S&P 500 fell 0.9 percent to 1,350.52 at 4 p.m. in New York, paring a loss of 1.8 percent. The Dow Jones Industrial Average dropped 101.11 points, or 0.8 percent, to 12,721.46. The Chicago Board Options Exchange Volatility Index rose 14 percent to 18.62. Volume for exchange-listed stocks in the U.S. was 6.4 billion shares, or 3.9 percent below the three-month average.

“Investors are on edge,” said Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc. His firm oversees $3.56 trillion. “Chinese growth has slowed. It’s not clear that the existing firewalls in Europe are large enough. We knew the Spanish regional governments had debt. The question is: how bad is it?”

Stocks fell as Spain’s 10-year bond yields rose to a euro- era high on bets more of its regions will ask for aid. Greece’s creditors meet this week, while German Vice Chancellor Philipp Roesler said he’s “very skeptical” European leaders will be able to rescue the nation. A Chinese central bank adviser said the country’s growth may cool to 7.4 percent this quarter.

‘Rising Uncertainty’

After the market closed, Moody’s said it lowered Germany, the Netherlands and Luxembourg’s Aaa credit rating outlooks to negative, citing “rising uncertainty” about Europe’s debt crisis. Risks that Greece may leave the 17-nation euro currency and “increasing likelihood” of collective support for European countries such as Spain and Italy were among reasons for the change, Moody’s said today in a statement.

Concern about a global slowdown has led investors to a more defensive stance since the S&P 500’s 2012 high in April. Phone, utility, consumer staple and health-care companies were the only ones to gain among 10 groups during that period. Financial shares have slumped 11 percent, the most in the S&P 500.

The Morgan Stanley (MS:US) Cyclical Index of companies most-tied tied to the economy lost 1.2 percent today. Alcoa Inc. (AA:US), the largest U.S. aluminum producer, slid 1.5 percent to $8.14. Microsoft Corp. (MSFT:US), the biggest software maker, dropped 2.8 percent to $29.28. Citigroup Inc. (C:US) fell 2.1 percent to $25.34.

Earnings Season

Investors also watched corporate results. Sales rose an average 3 percent in the second quarter among 123 members of the S&P 500 that have reported results so far, according to data compiled by Bloomberg. Only 41 percent of the reported companies have topped analysts’ estimates on sales, while 73 percent have beaten on profit, the data show.

McDonald’s slipped 2.9 percent to $88.94. The restaurant chain also said it may miss its full-year operating income growth target. Chief Executive Officer Don Thompson, who took the helm earlier this month, has struggled to lure budget- conscious Americans with a new extra-value menu. Sales at stores open at least 13 months in the U.S. rose 3.6 percent, the slowest growth in five quarters.

Cisco Systems Inc. (CSCO:US) retreated 1.8 percent to $16.07. The company said it is eliminating about 1,300 jobs, or 2 percent of the workforce, part of an effort to eliminate costs and streamline decision making.

Apple’s Results

Apple Inc. (AAPL:US) lost 0.1 percent to $603.83. The world’s largest company by market value reports quarterly results tomorrow. With a redesigned model probably arriving by October, analysts estimate that sales of iPhones -- Apple’s biggest source of revenue -- slid in the fiscal third quarter from prior periods. While analysts predict that the next iPhone will be the best- selling smartphone yet from Apple, the purchasing delays will probably weigh down results until the device hits stores.

Facebook Inc. (FB:US) dropped less than 0.1 percent to $28.75. The biggest social-networking company reports results this week. Sales probably rose 30 percent (FB:US) to $1.16 billion in the June period, according to analyst predictions (FB:US) compiled by Bloomberg. That would be the slowest growth rate yet disclosed by the company co-founded by Mark Zuckerberg in 2004.

Nine out of 11 stocks in a measure of homebuilders in S&P indexes advanced. U.S. homebuilders are an attractive investment as the housing market starts a “strong” recovery that may drive a surge in new-home sales, Goldman Sachs Group Inc. said in a report today. KB Home (KBH:US) added 3.6 percent to $10.16. PulteGroup Inc. (PHM:US) rose 1.4 percent to $11.01.

Higher Margins

Hasbro Inc. (HAS:US) climbed 4 percent to $35.19. The world’s second-largest toymaker reported second-quarter profit that topped analysts’ estimates as price increases boosted margins.

Halliburton Co. (HAL:US) rallied 2.4 percent to $31.51. The world’s largest provider of hydraulic-fracturing services said international sales climbed as the rig count and profit margin grew in the Eastern Hemisphere.

Eaton Corp. (ETN:US) rose 3.9 percent to $40.57. Its U.S. electrical equipment sales rose ahead of the company’s expansion in the industry through the acquisition of Cooper Industries Plc.

U.S. shares of Nexen Inc. (NXY:US) surged 52 percent to $25.90. Cnooc Ltd. agreed to pay $15.1 billion in cash for Calgary-based Nexen in the biggest overseas acquisition by a Chinese company.

NRG Energy Inc. (NRG:US) jumped 8.1 percent, the most in the S&P 500, to $19.52. Its $1.7 billion agreement to buy GenOn Energy Inc. (GEN:US) would create the largest U.S. independent electricity generator with more market strength to withstand slumping power prices. GenOn surged 26 percent to $2.29.

Other Deals

RailAmerica Inc. (RA:US) advanced 9.8 percent to $27.25, the highest since it went public in 2009. Genesee & Wyoming Inc. agreed to purchase (RA:US) it for $1.39 billion to combine North America’s two largest short-line and regional rail operators.

Peet’s Coffee & Tea Inc. (PEET:US) gained 28 percent to $73.05. Joh. A. Benckiser agreed to buy Peet’s, giving the closely held German holding company about 190 specialty cafes in the U.S. and access to an expanding grocery business.

Better-than-forecast earnings are masking weaker sales growth in the most recent quarter as U.S. companies improve margins to top estimates.

The gap in results signals companies may hold off hiring and expanding until demand rebounds globally. Federal Reserve Chairman Ben S. Bernanke told lawmakers last week that progress in reducing unemployment may be “frustratingly slow” with joblessness stuck above 8 percent since February 2009.

Lower Forecasts

Analysts have lowered predictions for profit and revenue in recent months. For earnings, they estimate a 1.6 percent decline on average among all S&P 500 members after anticipating a 0.5 percent increase in May. Revenue may rise 1.8 percent on average, down from a 3.7 percent estimate in May.

“People are sitting on the sidelines right now waiting to see what happens,” Verizon Communications Inc. Chief Financial Officer Fran Shammo said in a telephone interview last week after the New York-based company reported in-line second-quarter profit and sales. “This isn’t helping with growth, so I think we will continue to mosey along here in the states.”

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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Companies Mentioned

  • MCD
    (McDonald's Corp)
    • $100.37 USD
    • -0.21
    • -0.21%
  • MS
    (Morgan Stanley)
    • $31.41 USD
    • -0.27
    • -0.86%
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