U.S. stocks fell, sending the Standard & Poor’s 500 Index to a two-month low, as a slump in banks driven by JPMorgan (JPM) Chase & Co.’s $2 billion trading loss overshadowed an increase in a gauge of consumer confidence.
Financial shares, which comprise 15 percent of the S&P 500, slid 1.2 percent for the biggest drop among 10 groups. JPMorgan sank 9.3 percent as Chief Executive Officer Jamie Dimon said the lender made “egregious” mistakes and trading losses were “self inflicted.” More than 216 million JPMorgan shares traded, breaking the prior one-day record set in 2008. Commodity shares slumped as China’s industrial production grew the least since 2009, spurring concern demand for raw materials will wane.
The S&P 500 slid 0.3 percent to 1,353.39 at 4 p.m. New York time. It capped a two-week drop, falling 3.6 percent in the period. The Dow Jones Industrial Average lost 34.44 points, or 0.3 percent, to 12,820.60. About 6.6 billion shares changed hands on U.S. exchanges, in line with the three-month average.
“It’s a black eye for JPMorgan,” said Michael Shaoul, chairman of Marketfield Asset Management in New York, which oversees more than $1.9 billion. “It was considered to be one of the better big banks. There’s already a debate about regulation. Jamie Dimon will be in a weaker position to push back against it, JPMorgan will be in a weaker position.”
Stocks fell as JPMorgan’s chief investment office, run by Ina Drew, 55, took flawed positions on synthetic credit securities that remain volatile and may cost an additional $1 billion this quarter or next. Concern about the financial (S5FINL) industry overshadowed data showing consumer confidence rose in May to the highest level in four years.
A gauge of diversified financial institutions in the S&P 500 tumbled 3.2 percent, for the biggest decline among 24 groups. JPMorgan slumped 9.3 percent to $36.96. Citigroup Inc. (C) retreated 4.2 percent to $29.35. Bank of America Corp. (BAC) lost 2 percent to $7.55. Morgan Stanley (MS) slid 4.2 percent to $14.95. Goldman Sachs Group Inc. (GS) slipped 3.9 percent to $102.13.
U.S. lawmakers and interest groups favoring tighter restrictions on proprietary trading said JPMorgan’s loss bolsters their case. Senator Carl Levin, the co-author of the so-called Volcker rule and chairman of the Permanent Subcommittee on Investigations, said the disclosure served as a “stark reminder” to regulators drafting the proprietary- trading ban required by the 2010 Dodd-Frank Act.
“The regulatory and political environment is already a headwind and clearly this doesn’t help,” wrote Deutsche Bank AG New York-based analysts, including Matt O’Connor, in a report. Bank of America analyst Guy Moszkowski wrote separately that JPMorgan’s losses will be taken by those seeking stricter regulation as “an example of prop trading dangers.”
Today’s loss trimmed this year’s gain in S&P 500 (SPX) financial shares to 14 percent, still the biggest among 10 groups. Investors had bought the industry’s shares as first-quarter earnings grew 12 percent, almost double the increase in S&P 500’s profits, according to data compiled by Bloomberg. The benchmark index for U.S. equities has risen 7.6 percent in 2012.
Concern about the outlook for banks and Europe’s debt crisis took the S&P 500 down 1.2 percent this week. Greece’s political impasse since the inconclusive May 6 election has raised the odds another vote will have to be held as early as next month, threatening the implementation of austerity pledges and sparking concerns about the country leaving the euro.
“It’s never a good time to lose $2 billion, but this a particularly bad one given all the variables out there,” said Walter Todd, who oversees about $950 million as chief investment officer at Greenwood Capital in Greenwood, South Carolina. “Investors are nervous because of the situation in Europe. This is not something that the market needed.”
Energy and raw material shares in the S&P 500 declined as commodities fell for an eighth day to extend the longest slump in more than three years.
Chesapeake Energy Corp. (CHK) retreated 14 percent to $14.81 as the company said it may delay some of the $14 billion in asset sales planned for this year because the transactions may hurt its ability to comply with loan agreements.
MBIA Inc. (MBI) fell 4.6 percent to $9.37. The company may need to “substantially reduce” the value of an asset booked to reflect its ability to recoup funds from Ally Financial Inc. units if the lender’s mortgage division files for bankruptcy.
“At this time, the company cannot reasonably estimate the amount of the change, if any, in the value of the recoveries,” the Armonk, New York-based bond insurer said yesterday in a filing with the Securities and Exchange Commission.
Nordstrom Inc. (JWN) dropped 4.8 percent to $50.96. The U.S. chain with more than 100 namesake department stores posted first-quarter profit that trailed analysts’ estimates as expenses for e-commerce investments increased.
The S&P 500 rose as much as 0.6 percent earlier today as an unexpected gain in confidence signaled consumer purchases, which account for 70 percent of the economy, can keep expanding after growing at the fastest pace in more than a year.
Nvidia Corp. (NVDA) jumped 6.4 percent to $13.21 after predicting second-quarter sales that exceeded analysts’ estimates, bolstered by demand for its new graphics chips and mobile-phone processors.
Monster Worldwide Inc. (MWW) surged 19 percent to $9.33. The online recruiting service that’s exploring a sale of the company rose after Reuters reported that LinkedIn Corp. and private- equity firm Silver Lake Partners have expressed interest in a possible deal.
Arena Pharmaceuticals Inc. (ARNA) jumped 74 percent, the most since the shares began trading in 2000, to $6.36. The company’s weight-loss pill gained the backing of an advisory panel.
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