Stocks sank, erasing most of a weekly gain for U.S. benchmark indexes, commodities slid and Treasuries jumped as slower-than-forecast job growth spurred concern the economic recovery is in jeopardy. The euro weakened and Italian bonds fell amid concern Europe’s debt crisis will worsen.
The Standard & Poor’s 500 Index sank 1 percent to 1,339.79 at 2:56 p.m. in New York, leaving it little changed for the week. Oil tumbled 2.5 percent to $96.20 a barrel, helping drag the S&P GSCI Index of commodities to a 0.8 percent drop even as gold extended its biggest weekly advance since 2009 amid demand for haven assets. Five-year Treasury yields decreased as much as 18 basis points to 1.54 percent, the biggest intraday drop in 14 months. The euro depreciated 0.8 percent to $1.4245.
The S&P 500 retreated from within 0.8 percent of a three- year high after U.S. payrolls increased by 18,000 in June, about one-sixth the median estimate in a Bloomberg News survey of economists, and the jobless rate rose to a 2011 high of 9.2 percent. The report damped optimism about prospects for profit growth before the earnings season starts next week.
“It means that we’re still a ways off from getting to where we should be,” Warren Buffett, the billionaire chairman and chief executive officer of Omaha, Nebraska-based Berkshire Hathaway Inc., said in an interview with Bloomberg Television’s Betty Liu on the “In the Loop” program. “How fast the recovery will come, I don’t know. I see nothing that indicates any kind of a double dip,” or relapse into a recession. “I would bet very heavily against that.”
Bank of America Corp., General Electric Co. and Home Depot Inc. lost at least 1.8 percent to lead declines in 27 of 30 stocks in the Dow Jones Industrial Average, which slid 101.75 points, or 0.8 percent, to 12,617.74. Google Inc. (GOOG) sank 2.9 percent after Morgan Stanley cut the shares to “equal weight” and said the search-engine company’s spending on social media and other initiatives have an uncertain return on investment.
Losses in companies reliant on economic growth today represented a reversal from the past three weeks. The Morgan Stanley Cyclical Index tracking manufacturers, commodity producers and transportation stocks rose 10 percent between June 16 and yesterday, beating the Morgan Stanley Consumer Index of drugmakers and grocers by 6.6 percentage points. Amid concern the debt crisis in European nations including Greece would slow global growth, the consumer index outperformed the cyclical index by 9.7 points between Feb. 17 and June 16.
Alcoa Inc. (AA), the largest U.S. aluminum producer, will start the second-quarter earnings season on July 11. Profits at S&P 500 companies are projected to have gained 13 percent in the second quarter, according to analyst estimates compiled by Bloomberg. Growth at that rate would mark the smallest increase in two years, as companies from Ford Motor Co. to McDonald’s Corp. struggled with rising oil and commodity prices and a slowdown in consumer confidence.
Energy and raw-material producers are forecast to post earnings growth in excess of 40 percent, leading the increase among 10 industries. Industrial and technology company earnings are projected to have the next-highest growth at 13 percent each, estimates compiled by Bloomberg show.
The absence of stronger job growth has spurred concern consumer spending, which accounts for 70 percent of the economy, may slow and threaten the outlook for profits. The second- quarter slowdown in hiring underscores a recovery that Federal Reserve Chairman Ben S. Bernanke said is “frustratingly slow.”
“The report is exceedingly disappointing,” said Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion. “It fell short of just about everyone’s expectations and it certainly has to disappoint equity investors. It wasn’t just a miss, it was a complete whiff.”
The data revived speculation that the Federal Reserve will plan more stimulus efforts to bolster growth after its second round of so-called quantitative easing, known as QE2 among investors, ended in June.
“This raises the prospect of QE3 in the U.S. by November and perhaps even earlier than that in the U.K.,” said David Blanchflower, an economics professor at Dartmouth College, in a Bloomberg TV interview. “That’s what we’re going to see. How else are you going to stimulate?”
Treasuries extended a weekly rally driven earlier by concern that Europe’s government debt crisis will worsen. Ten- year Treasury yields sank 13 basis points to 3.01 percent, while 30-year yields lost nine basis points to 4.28 percent.
The Dollar Index, a gauge of the currency against six major peers, rose 0.3 percent to 75.181. The yen strengthened against 15 of 16 major peers and the Swiss franc appreciated versus all 16 amid increased demand for currencies considered to be a refuge in a weakening economy.
Oil, cocoa and zinc lost more than 2.3 percent to lead declines in the S&P GSCI Index. Gold futures for August delivery rose 0.8 percent to $1,543.50 an ounce on the Comex in New York. This week, the price has gained 4.1 percent.
Bank stocks led declines in Europe, with Italy’s UniCredit SpA, Intesa Sanpaolo SpA and Banco Popolare SC dropping more than 4.5 percent. The Stoxx 600 Banks Index slipped 2.3 percent for the biggest decline among 19 industries, extending losses after the U.S. jobs data.
EU Stress Tests
Banks that fail this year’s round of European Union stress tests may need to present plans for making up their capital shortfall by the end of September, according to an internal EU document.
Responding to the market turbulence, Bank of Italy Governor Mario Draghi said he’s certain the country’s lenders will pass European stress tests by a “significant” margin. The austerity measures approved by the government led by Prime Minister Silvio Berlusconi make balancing the country’s budget in 2014 a “realistic” goal, he said in a statement.
Italian bonds dropped for the fifth day and the extra yield investors demand to hold the securities instead of benchmark German bunds rose to 2.44 percentage points, the highest since before the euro was introduced in 1999. Greek 10-year yields advanced 17 basis points to 16.86 percent, with similar-maturity Irish and Spanish yields also climbing.
The Markit iTraxx SovX gauge for governments in western Europe climbed 13.8 basis points to 260. Credit-default swaps on Italy increased 29 basis points to 246.56, the highest since January, and Portugal’s rose 28.8 basis points to a record 1,017.1.
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