U.S. stocks fell, dragging the Dow Jones Industrial Average to its lowest level in three months, as the seizure of a Spanish bank and rising borrowing costs spurred concern Europe’s debt crisis will halt the global recovery.
Bank of America Corp. and JPMorgan Chase & Co. declined at least 3.5 percent to lead losses in the Dow Jones Industrial Average, while Wells Fargo & Co. slid 4.7 percent after being downgraded at Goldman Sachs Group Inc. Apple Inc. jumped 1.8 percent after Morgan Stanley raised its share-price estimate and added the stock to its list of “best ideas.”
The Standard & Poor’s 500 Index slipped 1.3 percent to 1,073.65 at 4 p.m. in New York. The Dow retreated 126.82 points, or 1.2 percent, to 10,066.57, its lowest close since Feb. 10. Stocks extended declines in the final 15 minutes of trading, with the Dow wiping out its 125-point rally on May 21 and the S&P 500 erasing most of its 1.5 percent advance that day. About five stocks fell for every two that rose on U.S. exchanges.
“We have more selling to go,” said Peter Jankovskis, who helps manage about $1.8 billion as co-chief investment officer at Oakbrook Investments in Lisle, Illinois. “There are too many uncertainties about Europe suggesting that the global economic growth may not continue. Get ready for more volatility.”
Banks posted the biggest decrease among 24 industries in the S&P 500, slumping 4 percent as a group, after the London interbank offered rate, or Libor, for three-month dollar loans advanced today to 0.51 percent, the highest level since July 16, from 0.497 percent at the end of last week, according to data from the British Bankers’ Association.
Bank of America Corp. slid 3.7 percent to $15.40, while JPMorgan fell 3.6 percent to $38.62.
Evidence is mounting that some financial institutions are facing stress. Four Spanish savings banks plan to combine to form the nation’s fifth-largest banking group with more than 135 billion euros ($168 billion) in assets. Caja de Ahorros del Mediterraneo, Grupo Cajastur, Caja de Ahorros de Santander y Cantabria and Caja de Ahorros y Monte de Piedad de Extremadura have submitted their proposal to Spain’s central bank, they said today in a filing.
The Bank of Spain is stepping up efforts to buttress or combine the weakest of Spain’s “cajas,” mutually owned banks that boosted lending more than fivefold during Spain’s economic boom and account for about half the country’s loans. The Bank of Spain put CajaSur, a lender based in Cordoba, under a provisional administrator two days ago. The bank lost 596 million euros ($739 million) on 426 million euros in revenue last year.
Wells Fargo, Janus
Wells Fargo dropped 4.7 percent to $28.71. The largest U.S. home lender was cut to “neutral” from “buy” at Goldman Sachs, which said there is “more relative value” in peers.
Janus Capital Group Inc. had the biggest decline in the S&P 500, slumping 7.5 percent to $10.51. The owner of the Janus, Intech and Perkins funds was cut to “sell” from “neutral” at Goldman Sachs.
DreamWorks Animation SKG Inc. tumbled 11 percent to $31.05. The company’s “Shrek Forever After” took in $71.3 million in U.S. and Canada as it opened over the weekend. The film was expected to take in $105 million, according to Gitesh Pandya, editor of Box Office Guru LLC.
Benchmark indexes rebounded on May 21 from their biggest drop in a year as investors speculated losses in equities stemming from concern about Europe’s debt crisis may have gone too far. The S&P 500 has fallen 12 percent from its 2010 high in April even as economic reports including U.S. retail sales beat estimates and European governments committed as much as 860 billion euros ($1.1 trillion) to support weak economies.
Entering a Correction
The S&P 500 has entered a correction, defined as a decline of more than 10 percent from a peak, on average 421 days after the start of 12 bull markets since 1932, according to HSBC Holdings Plc. The selloffs on average took the measure 15 percent lower. The benchmark has climbed 59 percent since entering its latest bull run on March 9, 2009.
Asian stocks gained today on speculation Chinese policy makers will rein in efforts to cool the economy. The Stoxx Europe 600 Index rose 0.4 percent, rebounding from last week’s 4.6 percent decline.
Apple rallied 1.8 percent to $246.76. The stock may rise 28 percent from last week’s close as investors embrace market share gains for the iPhone and demand for its iPad computer, according to Morgan Stanley. Analyst Kathryn Huberty raised her share forecast to $310 from $275 and put the company on a list of “best ideas,” according to a note to clients today. She kept the shares as “overweight,” a rating she’s held September.
“People are willing to consider the value of stocks that have fallen in prices,” said Peter Kenny, a managing director in institutional sales at Knight Equity Markets LP in Jersey City, New Jersey. “Apple, for instance, is cheap relative to projected growth.” Apple has fallen 9 percent since April 23 and is trading at less than 19 times estimated earnings, compared with about 32 times in September.
Citigroup Inc. gained 0.8 percent to $3.78. The bank was raised to “buy” from “neutral” at Goldman Sachs, which cited an improvement in consumer credit and a better environment for capital markets as volatility increases.
Sprint Nextel Corp. advanced 8.6 percent to $4.79. The third-largest U.S. mobile-phone carrier was raised to “buy” from “neutral” at Goldman Sachs.
Stocks pared declines in early trading after the National Association of Realtors said sales of U.S. previously owned homes rose in April to the highest level in five months as buyers took advantage of the last weeks of a government tax credit. Purchases increased 7.6 percent to a 5.77 million annual rate.
The housing sales numbers are “a reassurance that the fundamentals of the economy are still reasonable and going in a positive direction,” said Lon Erickson, a managing director at Santa Fe, New Mexico-based Thornburg Investment Management.
U.S. stock volatility that surged to the highest level since March 2009 may persist as Europe’s debt crisis defies resolution, Relational Investors LLC’s Ralph Whitworth said. The VIX, as the Chicago Board Options Exchange Volatility Index is known, dropped 4.4 percent to 38.32 today and is down 16 percent from its 14-month high on May 20 after more than doubling since April 23.
“Volatility sent a strong message that we’re not out of the woods globally,” said Whitworth, who helps oversee $6.5 billion at San Diego-based Relational Investors. “I expect the modest recovery that’s under way to have resilience, with the major caveat being a big blow-up in Europe. That could spread like an infection.”
Rising volatility is spurring Whitworth to favor companies with strong cash flow and low debt, he said. Relational’s co- founder is bullish on Baxter International Inc., a maker of treatments for immune system disorders in Deerfield, Illinois.
Baxter International surged 2.8 percent to $41.82, for the third-biggest gain in the S&P 500.
Tenet Healthcare Corp. had the second-biggest gain, rallying 3.2 percent to $5.54. The Dallas-based hospital operator was raised to “overweight” from “neutral” at JPMorgan Chase.
Odyssey HealthCare Inc. surged 39 percent to $26.75. Gentiva Health Services Inc., the second-largest U.S. home- nursing company, agreed to buy Odyssey for about $1 billion in cash, creating the biggest U.S. hospice and home health-care provider, according to company statements today. Gentiva advanced 13 percent to $29.17.