Bloomberg News

U.S. Stocks Decline on Concern Over European Debt Crisis

August 20, 2012

U.S. Stocks Decline Amid Concern Over European Debt Crisis

Traders work on the floor of the New York Stock Exchange. Photographer: Scott Eells/Bloomberg

U.S. stocks fell, after the Standard & Poor’s 500 Index rose to its highest level since April, amid investor concern European leaders will fail to quell the region’s debt crisis.

All 10 groups in the S&P 500 (SPX) declined as Germany’s Bundesbank stepped up its criticism of the European Central Bank’s bond-buying program. Yields on Spanish bonds trimmed declines after dropping to a six-week low. Best Buy Co. lost 7.3 percent after saying its founder declined an offer from the board to conduct due diligence and go to shareholders with his buyout offer. Lowe’s Cos. fell 4.2 percent after missing analysts’ profit predictions and cutting its earnings forecast.

The S&P 500 lost 0.4 percent to 1,412.92 at 10:28 a.m. in New York. The U.S. equity benchmark on Aug. 17 came within one point of an almost four-year high struck in April. Dow Jones Industrial Average futures expiring the same month declined 35.76 points, or 0.3 percent, to 13,239.44.

“We’re at a pretty formidable technical resistance here,” Michael Strauss, who helps oversee about $26 billion of assets as the chief investment strategist at Commonfund in Wilton, Connecticut, said in a telephone interview. “The Bundesbank does have a hard problem with this,” he said, referring to the ECB’s bond-buying program. “Germany is being put in the position as being the lender of last resort in Europe.”

The S&P 500 last week capped its longest stretch of weekly gains since January 2011 as economic reports beat forecasts and Germany backed the European Central Bank’s bond-buying plan. Trading volume and volatility have dropped this month as vacationing traders awaited policy clues from the Federal Reserve’s summit at the end of the month and an ECB meeting in September.

The ECB’s governing council may decide at its next gathering to set yield limits on each country’s debt, Spiegel magazine reported yesterday, without saying where it got the information. Government bond purchases “entail significant stability risks,” the Bundesbank said in its monthly report today.

House Purchases

Reports in the U.S. this week will show that combined purchases of new and existing houses increased to a 4.89 million annual rate in July from a 4.72 million pace in June, according to the median forecasts in surveys of economists before releases from the National Association of Realtors on Aug. 22 and the Commerce Department the next day. Bookings for long-lasting goods may have climbed the most this year, a release from the Commerce Department will show Aug. 24, according to the median estimate.

The Fed will on Aug. 22 release minutes from the Aug. 1 meeting of the Federal Open Market Committee, when policy makers declined to initiate a third round of monetary stimulus, a policy known as quantitative easing.

Bull Run

The 13 percent rally in the S&P 500 this year through Aug. 17 has lifted the gauge to its highest level ever compared with strategists’ forecasts, a sign that the best may be over for U.S. equities in 2012.

Shares have climbed 2.1 percent above the average projection of 1,389 from 13 firms from Morgan Stanley to JPMorgan Chase & Co. tracked by Bloomberg. That’s the biggest premium on record for this time of year, according to data going back to 1999. Estimates by strategists in August have come true for the last three years, with the S&P 500 rising 11 percent on average through December, the data show.

Discretionary and commodity companies posted the biggest declines out of 10 groups in the S&P 500, falling 0.8 percent each.

Best Buy erased 7.3 percent for the biggest decline in the S&P 500 to $18.80. The retailer’s board proposed that founder Richard Schulze, beginning in January, be allowed to take his buyout offer to shareholders, should the board decide to reject any definitive proposal to acquire shares. Schulze didn’t accept the proposal, according to Best Buy.

Lowe’s (LOW:US) tumbled 4.2 percent to $26.71. The second-largest U.S. home-improvement retailer reported second-quarter earnings that trailed analysts’ estimates as comparable-store sales fell. Adjusted earnings per share reached 65 cents, the Mooresville, North Carolina-based company said today. Analysts had projected 70 cents, the average of 24 estimates (LOW:US) in a Bloomberg survey. The retailer cut its full-year profit forecast to $1.64 a share from a projection of $1.83 a share in May.

Corinthian Colleges Inc. (COCO:US) slipped 13 percent to $2.13. The for-profit college operator forecast revenue in the first quarter will be no more than $405 million, missing the average analyst estimate of $406.4 million.

Coventry Health Care Inc. (CVH:US) surged 19 percent to $41.60. Aetna Inc. (AET:US), a health insurer, will pay $42.08 a share for the medical-care provider in cash and stock, the companies said in a statement today. Aetna’s shares climbed 4.7 percent to $39.81.

Sirius XM Radio Inc. (SIRI:US) climbed 1.5 percent to $2.60 as Liberty Media Corp. said it plans to take control of the satellite-radio broadcaster. Liberty Media said in a filing to the Federal Communications Commission after trading ended last week that by increasing its stake to more than 50 percent it can take control of the radio provider within 60 days of receiving approval for the transfer from the regulator.

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net

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


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Companies Mentioned

  • LOW
    (Lowe's Cos Inc)
    • $55.33 USD
    • 0.37
    • 0.67%
  • COCO
    (Corinthian Colleges Inc)
    • $0.14 USD
    • -0.10
    • -71.43%
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