U.S. Stocks Plunge Most in 14 Months as European Crisis; Volatility Surges

U.S. stocks fell the most in 14 months, erasing the Standard & Poor’s 500 Index’s 2010 advance, as concern Greece’s debt crisis is spreading and the most volatile trading in 23 years sent the gauge down 6.3 percent.

Waves of electronic selling helped push the Dow Jones Industrial Average down as much as 9.2 percent on May 6, the biggest drop since the Crash of 1987, before paring losses. Industrial and materials companies in the S&P 500 fell at least 7.9 percent as all 10 industry groups declined. American Express Co. lost 12 percent.

The S&P 500 slumped 6.4 percent to 1,110.86, wiping out its advance for this year. The Dow lost 628.18 points, or 5.7 percent, to 10,380.43, the lowest since February. It’s now off 0.5 percent for the year, while the S&P 500 is 0.4 percent lower year-to-date. Both measures posted the largest weekly losses since March 2009. The VIX, the benchmark index for U.S. stock options, surged 86 percent to 40.95 for the biggest weekly gain in its two-decade history.

“We have a massive debt bubble globally and it’s going to take a decade or more to get back to reasonable, sustainable levels,” said George Feiger, chief executive officer of Contango Capital Advisors Inc., which oversees about $1.7 billion in San Francisco. “There’s this deep need to believe that the problems are over but the old system, the old opportunities, aren’t coming back, at least not for many years.”

Reviewing the May 6 Plunge

Federal regulators are reviewing the May 6 stock plunge to determine if the fivefold increase in the number of American equity exchanges has left them unable to manage the biggest surges in volume. The Securities and Exchange Commission will also examine if controls to prevent the rout from snowballing weren’t in place at exchanges and firms

European stocks tumbled the most in 18 months before euro- region leaders met in Brussels yesterday to endorse the Greek bailout. A measure of bank stocks slumped the most since March 2009. Bond yields surged across the bloc’s southern periphery, threatening to undermine the single currency.

Thursday “was a warning sign that things are not as great as they think,” said Stephen Davis, associate portfolio manager at Alpine Woods Capital Investors LLC, which oversees $7 billion in Purchase, New York. “I don’t think it means you need to panic, but you need to think about the stocks you’re holding and why.”

European Debt Concerns

Concern about Europe’s debt overshadowed the biggest jump for U.S. payrolls in four years. The increase of 290,000 jobs exceeded the median estimate of economists surveyed by Bloomberg News, led by gains in private employment that indicate the economy is weaning itself from government support. The jobless rate rose to 9.9 percent from 9.7 percent as thousands of jobseekers entered the workforce.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, rose as high as 42.15 yesterday. Europe’s VStoxx Index, which measures options on the Euro Stoxx 50 Index, rose 72 percent to 49.60 and spiked as much as 63 percent on May 6 for the biggest intraday gain since the Sept. 11, 2001 terror attacks.

Materials and industrial companies posted the two biggest weekly drops among 10 S&P 500 industry groups, declining at least 7.9 percent as all members of both groups retreated.

“Fear and panic have quickly come back into the market,” said Eric Marshall, who helps oversee $1 billion as research director of Dallas-based Hodges Capital Management Inc. “I think it actually will create a bottom for stocks here at some point.”

Dow Chemical Tumbles

Dow Chemical Co., the biggest U.S. chemical maker, slipped the most since January 2009, losing 17 percent to $25.50. UBS AG said profit margins for ethylene and related plastics are narrowing and won’t recover for years.

Apple Inc. posted its biggest weekly loss since October 2008 after Nokia Oyj, the world’s biggest maker of mobile phones, filed a patent-infringement lawsuit in its latest salvo over the iPhone and iPad. The lawsuit, the fifth patent complaint between the two companies in the past year over smartphone technology, sent Apple shares down 9.7 percent to $235.86.

Quarterly reports scheduled for next week include Walt Disney Co., the world’s largest media company, and Cisco Systems Inc., the world’s biggest maker of computer networking equipment. Retailers Macy’s Inc., Nordstrom Inc., J.C. Penney Company Inc. and Whole Foods Market Inc. are also due to report results.

Sales at U.S. retailers in April probably rose for a seventh straight month, in a sign that consumer spending is broadening the recovery, economists said before reports next week.

The Treasury will sell $26 billion in three-month and six- month bills on May 10. They yielded 0.14 percent and 0.20 percent, respectively, in when-issued trading. The U.S. government also plans to sell $38 billion in three-year notes on May 11, $24 billion in 10-year Treasury notes on May 12 and $16 billion in 30-year bonds on May 13. They yielded 1.35 percent, 3.43 percent and 4.28 percent in when-issued trading.

To contact the reporters on this story: Esmé E. Deprez in New York at edeprez@bloomberg.net.

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