U.S. Stocks Decline on Concern European Debt Crisis May Worsen
U.S. Stocks Decline on Concern European Debt Crisis
Jin Lee/Bloomberg
The MSCI World Index dropped 1.1 percent amid concern European lenders will need more capital to offset holdings of bonds in the euro zone’s weakest economies. Bank stress tests
The MSCI World Index dropped 1.1 percent amid concern European lenders will need more capital to offset holdings of bonds in the euro zone’s weakest economies. Bank stress tests Photographer: Jin Lee/Bloomberg
Sept. 7 (Bloomberg) -- Uri Landesman, president of Platinum Partners LLP, talks about the outlook for the U.S. equity market and his investment strategy. Landesman speaks with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)
Sept. 7 (Bloomberg) -- Bloomberg's Courtney Donohoe reports on the performance of the U.S. equity market today. U.S. stocks fell for the first time in five days, ending the longest streak of gains for the Standard & Poor’s 500 Index since July, on concern the European debt crisis may worsen, hampering global growth. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)
Sept. 7 (Bloomberg) -- Mike Lenhoff, chief strategist at Brewin Dolphin Securities Ltd., talks about his investment strategy and the outlook for improving corporate dividends. Lenhoff speaks from London on Bloomberg Television's "On the Move" with Francine Lacqua. Brewin Dolphin oversees $33 billion. (Source: Bloomberg)
U.S. stocks fell for the first time in five days, ending the longest streak of gains for the Standard & Poor’s 500 Index since July, on concern the European debt crisis may worsen, hampering global growth.
Bank of America Corp. and Citigroup Inc. fell at least 2 percent as European banks slid on concern stress tests understated potential losses from sovereign debt. ConocoPhillips and Chevron Corp. slumped more than 1.2 percent as crude oil fell the most in a week. Oracle Corp. rallied 5.9 percent, the most since December, after naming Mark Hurd, former chief executive officer of Hewlett-Packard Co., as president.
The S&P 500 lost 1.2 percent to 1,091.84 at 4 p.m. in New York, halting a four-day rally. The Dow Jones Industrial Average retreated 107.24 points, or 1 percent, to 10,340.69. The gaps between 10-year German bond yields and those of Irish and Portuguese debt climbed to all-time highs, while the German- Greek yield spread increased to the widest since May.
“Widening spreads are like a canary in a coal mine,” said Quincy Krosby, chief market strategist for Newark, New Jersey- based Prudential Financial Inc., which oversees $690 billion. “It’s a signal that debt concerns are mounting. In order for the stock market to move higher, investors will have to see a solid package of economic data suggesting that we’re avoiding a double-dip recession.”
U.S. stocks last week snapped three weeks of declines as better-than-estimated growth in private employment and manufacturing increased optimism that the world’s largest economy will avoid slipping back into recession. The S&P 500 remains 10 percent below this year’s peak in April.
Trading Volume
Trading volume on U.S. stock exchanges amounted to 6.26 billion shares today, near the 2010 low of 5.8 billion set on Aug. 30, according to data compiled by Bloomberg.
The MSCI World Index dropped 1.1 percent amid concern European lenders will need more capital to offset holdings of bonds in the euro zone’s weakest economies. Bank stress tests published in July understated some financial institutions’ sovereign debt holdings, the Wall Street Journal reported, citing its own analysis. The Association of German Banks said yesterday the nation’s 10 largest lenders may need about 105 billion euros ($134 billion) in fresh capital.
The S&P 500 Financials Index fell 2.4 percent, the biggest decline among 10 industries. Bank of America lost 2.2 percent to $13.21, while Citigroup slid 2.1 percent to $3.83. American Express Co. had the biggest retreat in the Dow, dropping 4.1 percent to $40.09.
German Data
Global stocks also fell after a German government report showed factory orders unexpectedly fell in July as demand in the euro region weakened, indicating the recovery in Europe’s largest economy is losing momentum. Policy makers in Japan and Australia left interest rates unchanged today, citing concern that the outlook for U.S. growth is deteriorating.
“The challenges haven’t gone away,” said James Dunigan, chief investment officer at PNC Wealth Management in Philadelphia, which oversees $103 billion. “The European debt worries that haunted us earlier this year are showing up again. Even as last week we had a couple of economic signals that weren’t as bad as we thought, the headwinds have been around.”
The S&P 500 plunged 16 percent between April 23 and July 2 amid concern that less spending by indebted European nations would curb the global economic recovery. It then rebounded as much as 10 percent through Aug 9 before falling 3.2 percent.
The benchmark index for U.S. stock options had the biggest increase in almost a month. The VIX, as the Chicago Board Options Exchange Volatility Index is known, rose 12 percent, the biggest gain since Aug 11, to 23.8. The index, which measures the cost of using options as insurance against declines in the S&P 500, last week slid to the lowest level in four months. The gauge is down from this year’s peak of 45.79 on May 20.
Energy Companies Slump
Energy producers slumped 1.6 percent as concern about the global recovery sent the U.S. dollar higher, reducing the appeal of commodities as an alternative investment.
The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, rose 1.1 percent. Crude oil for October delivery lost 0.7 percent to $74.09 in New York, the biggest decrease since Aug. 31.
ConocoPhillips, the third-largest U.S. oil company, lost 2.5 percent to $53.66. Chevron, the nation’s second-biggest oil company, declined 1.2 percent to $77.05.
The Russell 2000 Index of small U.S. companies fell 2.2 percent, after rallying 6.9 percent in four days. Idenix Pharmaceuticals Inc. dropped the most, plunging 47 percent to $3.18 for the biggest decline since it went public in July 2004. Two of its experimental hepatitis C drugs were placed on hold by U.S. regulators because they caused abnormal liver function.
Lower Estimates
Oppenheimer & Co. Chief Investment Strategist Brian Belski cut his 2010 and 2011 estimates for the S&P 500, becoming at least the third strategist in two weeks to reduce his outlook on U.S. stocks.
The benchmark for American equities may end the year at 1,225, Belski said, a gain of 11 percent in the next four months from its Sept. 3 close. He had earlier predicted an advance to 1,300. Birinyi Associates Inc.’s Laszlo Birinyi lowered his 2010 projection to 1,225 from 1,325 on Aug. 26, and Barry Knapp, of Barclays Plc, cut his estimate to 1,120 from 1,210 on Aug. 27.
“We have to be realistic and acknowledge that the pace of recent economic data has been weaker than we would have expected,” Belski said in a research note. “The deceleration of important economic indicators recently cannot be ignored.”
Back to Stocks
The S&P 500 has fallen for three of the past four months as Europe’s debt crisis and disappointing U.S. economic reports ranging from home sales to employment raised concern the economy may slip back into a recession. Oppenheimer predicts the index may rally through the rest of 2010 as rising corporate profits lead investors back to stocks. Oracle rose 5.9 percent to $24.27. The world’s second- biggest software company hired Mark Hurd as president and member of the board, reporting to Chief Executive Officer Larry Ellison. At HP, Hurd more than tripled profit by cutting costs and expanding beyond computers and printers.
Verizon Communications Inc., which has the highest dividend yield in the Dow average, was one of four stocks in the 30- company measure to rise.
More U.S. stocks are paying dividends that exceed bond yields than any time in at least 15 years as profits rise at the fastest pace in two decades. There are 68 S&P 500 companies with payouts that top the 3.80 percent average rate in credit markets, based on data since 1995 compiled by Bloomberg and Bank of America. The combination of record-low interest rates, potential profit growth of 36 percent this year and a slowing economy has forced investors into the relative value reversal.
“That’s the tug-of-war that’s going on right now,” said Peter Vanderlee, a money manager at ClearBridge Advisors, a unit of Baltimore-based Legg Mason Inc., which oversees $659 billion. “If we are going into a double-dip recession, maybe we’re not as cheaply priced as one would suggest. The other side of it is that if we’re just experiencing a slowdown, but we’re avoiding a recession, then prices are clearly attractive.”
To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net.
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