U.S. stocks extended a sixth weekly drop, the longest slump for the Dow Jones Industrial Average since 2002, and oil slid while Treasuries, the dollar and yen rose amid concern the global economy is slowing. Crude extended losses as OPEC said Saudi Arabia pumped the most since 2008.
The Dow lost 172.45 points, or 1.4 percent, to 11,951.91 at 4 p.m. in New York, its first dip below 12,000 since March, and the Standard & Poor’s 500 Index fell 1.4 percent to 1,270.98. Ten-year Treasury yields lost three basis points to 2.97 percent, the Dollar Index rose for a third day and the yen strengthened against all 16 major peers. The cost of insuring Greek and Portuguese debt rose to records amid lingering concern over Europe’s debt crisis. Oil sank below $100 a barrel.
U.S. equity benchmark indexes are threatening to erase gains for the year amid concern the economic recovery is weakening. The S&P 500 trimmed its 2011 advance to 1.1 percent today and the MSCI World Index is up 0.6 percent. The Russell 2000 Index of small U.S. stocks and the Nasdaq Composite Index both erased their gains for 2011 today.
“The big question mark for investors is -- is this simply a transitory soft patch?” said Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion. “Or, if not, will this begin to weigh on corporate profits in a slow economic growth environment, and therefore equity valuations will have to be adjusted? Right now the market is saying the latter.”
The S&P 500 lost more than 2.2 percent this week and is down 6.8 percent from a three-year high at the end of April, while Treasury yields linger near their 2011 lows. The slump left the equity index trading at about 12.1 times the forecast earnings of its companies, near the cheapest level since last summer, as analysts surveyed by Bloomberg forecast profit growth of 20.1 percent this year.
The drivers of the retreat have been an inventory correction in manufacturing because of overproduction, a slowdown in demand because of high oil prices, “spiced up with a flareup of sovereign debt pressures in the European Monetary Union periphery, plus worries about Chinese tightening,” according to JPMorgan Chase & Co. (JPM) strategists led by Jan Loeys. It also comes as investors await the end of the Federal Reserve’s $600 billion bond-purchase program, the central bank’s third round of so-called quantitative easing that investors nicknamed “QE2.”
“How much further markets correct depends on how these bearish drivers worsen and how much investors really believe it was QE2 rather than better data that turned markets around last year,” Loeys’ team wrote in a note to clients today. “Economic data are still on net weaker though supportive of a rebound into” the third quarter.
Travelers Cos. led losses in the Dow today, sliding 3.1 percent, after the insurer said it’s scaling back share repurchases as about $1 billion in catastrophe costs will probably wipe out second-quarter operating profit.
Financial shares pared losses as CNBC reported that international regulators are considering a maximum surcharge on capital requirements for the biggest banks that may be 2 to 2.5 percentage points, not the 3 percent widely reported. CNBC cited unidentified officials. Central bankers and supervisors meeting in Basel, Switzerland, have decided that banks need to hold more capital to avoid future taxpayer-funded bailouts.
The group of S&P 500 financial shares closed down 0.7 percent after sliding as much as 2.1 percent earlier as the Federal Reserve announced wider scrutiny of the balance sheets of banks. The Fed said it will expand a capital-planning program to the 35 largest U.S. lenders. Banks with at least $50 billion in assets will be required to conduct annual exams to ensure “robust, forward-looking capital planning processes that account for their unique risks and that permit continued operations during times of economic and financial stress,” the Fed said today.
Financial shares have performed the worst among 10 groups in the S&P 500 this year, down 7.3 percent.
“We’re going to go through a period of over-regulation of the large banks,” said Michael Shaoul, chairman of Marketfield Asset Management, which oversees $1 billion in New York. “It’s going to lead to significantly less profitability. Whether or not it makes the world a safe place or not, I’d be very agnostic.”
Oil companies led losses, with Exxon Mobil Corp. (XOM) and Chevron Corp. pacing declines all 41 energy companies in the S&P 500, as crude slid.
July oil futures lost 2.6 percent to $99.29 a barrel in New York, the biggest drop in four weeks. Silver, lead and live cattle also fell more than 1.9 percent to lead a 1.2 percent slump in the S&P GSCI Index of commodities, which snapped a three-day advance.
OPEC crude production rose in May as Saudi Arabia, the group’s biggest exporter, pumped the most since 2008, according to the group’s Vienna-based secretariat. Saudi Arabia, Kuwait, Qatar and the United Arab Emirates proposed a 1.5 million barrel-a-day increase in output targets at the Organization of Petroleum Exporting Countries June 8 meeting in Vienna. The group failed to reach an accord after the plan was opposed by Libya, Angola, Ecuador, Algeria, Iran and Venezuela, Saudi Arabian oil minister Ali al-Naimi said.
Today’s decline in global equities followed data showing China reported a smaller-than-estimated trade surplus today as export growth slowed, while U.K. manufacturing growth fell more than economists forecast.
Almost 10 stocks fell for each that gained in the Stoxx Europe 600 Index, which tumbled 1.3 percent. The gauge has dropped 2 percent this week, its sixth straight weekly decline for its longest slump since July 2008. Sulzer AG sank 5 percent today after the Swiss pumpmaker said Chief Executive Officer Ton Buechner will leave to join Akzo Nobel NV. Hermes International SCA slipped 4.8 percent as LVMH Moet Hennessy Louis Vuitton SA said it doesn’t intend to make a takeover bid.
The MSCI Emerging Markets Index retreated 1.3 percent to the lowest level in two weeks, with the MSCI China Index dropping 0.8 percent. Investors withdrew $222 million from emerging-market equity funds in the week ended June 8, Citigroup Inc. said in a report.
South Korea’s Kospi Index sank 1.2 percent and the won climbed against all but one of its most-traded counterparts after the central bank raised interest rates for a third time this year. India’s Bombay Stock Exchange Sensitive Index declined 0.6 percent as a report showed factory production slowed in April. Taiwan’s Taiex Index lost 1.8 percent, led by HTC Corp., after Goldman Sachs Group Inc. cut shares of the handset maker from its “conviction buy” list.
Thailand’s SET Index climbed 0.4 percent. Mark Mobius, who oversees about $50 billion as the executive chairman of Templeton Emerging Markets Group, said he’s optimistic on Thai shares even after the SET index sank this month on concern July’s elections will spur political turmoil.
The yen advanced 0.1 percent against the dollar and gained 1.2 percent versus the euro. The Dollar Index, which tracks the U.S. currency against those of six trading partners, rose 0.9 percent, climbing for the third consecutive day, the longest run since February.
The extra yield investors demand to hold Portuguese 10-year bonds instead of benchmark German bunds climbed to 747 basis points, a euro-era all-time high. The Greek-German spread widened 13 basis points to 13.76 percentage points, with the Spanish-bund gap increasing 10 basis points. The Markit iTraxx SovX Western Europe Index of contracts on 15 governments was up 10.7 basis points to 212.15.
German Finance Minister Wolfgang Schaeuble said bondholders should assume a “fair” share of further Greek aid, a day after European Central Bank President Jean-Claude Trichet rejected any direct ECB participation in a second Greek bailout. Jan. 12.
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