Dow Falls 6th Day in Longest Slump Since August on Greece
The Dow Jones Industrial Average (INDU) dropped for a sixth straight day, the longest losing streak since August, as Greece’s political impasse intensified concern about a worsening of the European sovereign-debt crisis.
Bank of America Corp. and Citigroup (C) Inc. fell at least 0.8 percent, following a tumble in a measure of European lenders. Newmont Mining Corp. (NEM) and Halliburton Co. (HAL) slid more than 1.2 percent to pace losses in commodity shares. Macy’s Inc. (M) slumped 5.6 percent as the owner of its namesake and Bloomingdale’s department stores repeated its profit forecast for this year.
The Standard & Poor’s 500 Index retreated 0.9 percent to 1,350.99 at 9:45 a.m. New York time. The Dow declined 111.49 points, or 0.9 percent, to 12,820.60. The 30-stock measure was poised to cap the longest slump since Aug. 2, three days before S&P stripped the U.S. of its AAA credit rating.
“Everything is not fine with Europe, it never was and that’s the problem,” said Bruce Bittles, chief investment strategist at Milwaukee-based Robert W. Baird, which oversees $85 billion. “It looks like Greece is going to have to leave the euro zone. It’s going to be sooner rather than later. It will be a critical period. The markets will probably remain on edge over the next several weeks.”
Stocks slumped and Spanish default risk climbed to a record as Alexis Tsipras of Greece’s Syriza party squared off with political leaders before talks on forming a coalition, handing them an ultimatum to renounce support for the European Union-led rescue if they want to enter government. Greece, which has 436 million euros ($566 million) of debt coming due on May (SPX) 15, is struggling to form a government after weekend elections.
Concern about the European debt crisis helped drive the S&P 500 down 2.5 percent in May and trimmed this year’s advance to 8.4 percent. Commodity and technology companies, which are more dependent on the pace of economic growth, have led the declines so far this month.
American financial companies retreated as a measure of European lenders slumped 2.9 percent. Bank of America declined 0.8 percent to $7.73. Citigroup decreased 1.5 percent to $30.84.
Moody’s Investors Service will this month start cutting the credit ratings of more than 100 banks, a move that risks pushing up their funding costs and forcing them to curb lending in a threat to economic growth.
BNP Paribas SA, France’s biggest lender, Deutsche Bank AG, Germany’s largest, and New York-based Morgan Stanley are among firms that face having their short- and long-term debt downgraded to their lowest-ever levels by Moody’s, the ratings company said in February.
Energy and raw material producers also retreated. Newmont Mining, the largest U.S. gold producer, decreased 1.2 percent to $44.22. Halliburton, the world’s largest provider of hydraulic- fracturing services, slid 2.4 percent to $31.90.
Macy’s slumped 5.6 percent to $37.29. The company repeated its forecast that profit this year would be $3.25 to $3.30 a share. Analysts estimated $3.39, on average.
Some stocks slumped after analysts’ downgrades. Marvell Technology Group Ltd. (MRVL) dropped 3 percent to $13.48 after being cut to neutral from buy at UBS AG. CF Industries Holdings Ltd., the largest U.S. maker of nitrogen fertilizers, tumbled 4.7 percent to $174.26 after Dahlman Rose & Co. recommended selling the shares.
Walt Disney Co. (DIS) jumped 2.8 percent to $45.54, a record high. The world’s largest entertainment company said fiscal second-quarter earnings rose 21 percent, beating analysts’ estimates on rising theme-park and cable-television profits.
Arena Pharmaceuticals Inc. increased 5.6 percent to $3.61. The biopharmaceutical company was raised to outperform from market perform at BMO Capital Markets. The rating means that Arena is forecast to beat the market.
U.S. stocks are less than expensive regardless of the price-earnings ratio used to value them, according to Richard Bernstein, chief executive officer of Richard Bernstein Advisors LLC.
A comparison of the S&P 500’s multiple to earnings from the previous four quarters along with a ratio, compiled by Yale University Professor Robert J. Shiller, that’s based on 10 years of income, put the index’s value at respectively 13.8 times and 22.2 times profit.
“The market looks at worst reasonably valued, at best downright cheap,” Bernstein said in an interview with Robert Huebscher, founder and CEO of the Advisor Perspectives website, that was published yesterday.
Both price-earnings indicators look “better than normal” after taking interest rates into account, he said. The average yield on 10-year Treasury notes has fallen to 2.01 percent this year from 2.76 percent for all of last year, according to data compiled by Bloomberg.
“People are underestimating the risk outside the U.S. and overestimating the risk inside it,” said Bernstein, based in New York. “Over the next several years, there is going to be a reevaluation of those risks, and we should get higher multiples in the U.S.”
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