U.S. Stocks Fall as Spanish Debt Overshadows Economy
U.S. stocks fell, trimming the first weekly gain in the Standard & Poor’s 500 Index since April, as concern about Spain’s finances tempered optimism with data showing American consumer confidence rose to a four-year high.
Industrial (S5INDU), commodity and financial companies had the biggest declines in the S&P 500 among 10 groups. Boeing Co. (BA), JPMorgan Chase & Co. (JPM) and Chevron Corp. (CVX) retreated at least 1.2 percent to pace losses in the largest companies. Facebook Inc. (FB) tumbled 3.4 percent, following a two-day advance.
The S&P 500 decreased 0.2 percent to 1,317.82 at 4 p.m. New York time. The benchmark measure for U.S. equities gained 1.7 percent this week. The Dow Jones Industrial Average dropped 74.92 points, or 0.6 percent, to 12,454.83. About 5 billion shares changed hands on U.S. exchanges, the fewest this year. The U.S. stock market will close on May 28 for a holiday.
“It’s tough,” said Rick Fier, director of equity trading at Conifer Securities LLC in New York. His firm oversees more than $12 billion. “America is doing great, yet Europe is a real disaster. Where it ends? Who knows.”
Spain is analyzing requests from regional governments to help them regain access to capital markets, Deputy Prime Minister Soraya Saenz de Santamaria said today. Catalonia’s government said it is complying “strictly” with its budget program and will honor its commitments. The Bankia (BKIA) group, a Spanish lender nationalized earlier this month, will seek 19 billion euros ($23.8 billion) of government funds. In the U.S., the Thomson Reuters/University of Michigan final index of consumer sentiment climbed to 79.3 in May, beating estimates.
More than $1 trillion was erased from U.S. equity values this month amid uncertainties over Greece’s permanence in the euro. The S&P 500 has slumped 5.7 percent since the end of April and was headed for its second monthly decline, the longest losing streak since September.
“People are wondering if there are other skeletons in Spain’s regional government closets,” said Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc. His firm oversees $3.68 trillion. “Greece is critical, but relatively small in the euro zone. The same cannot be said of Spain.”
Investors are reluctant to take risk even as the U.S. stock market looks attractive, said Mark Lehmann, president of JMP Securities. The S&P 500 trades at 13.3 times reported earnings, below the average since 1954 of 16.4, according to data compiled by Bloomberg. About 71 percent of companies in the benchmark index which reported first-quarter results beat estimates.
“It’s very vanilla right now,” Lehmann said in a telephone interview from San Francisco. “I don’t think there’s anybody getting wildly bullish or wildly bearish. The U.S. economy is in better shape, corporate balance sheets are in better shape. Yet the fear of the unknown is taking over. Nobody is panicking, yet nobody is taking a lot of risk.”
Eight out of 10 groups in the S&P 500 fell today. Boeing, the largest aerospace company, retreated 2 percent to $70. JPMorgan declined 1.4 percent to $33.50. Chevron dropped 1.2 percent to $98.86.
Facebook retreated 3.4 percent to $31.91, erasing yesterday’s gain. The company’s initial public offering, which set a record for technology companies by raising more than $16 billion, also has the distinction of producing the worst return among the largest U.S. deals of the past decade.
Shares of Menlo Park, California-based Facebook have fallen 13 percent since underwriters sold them for $38 on May 17 through yesterday. The decline exceeds the 10 percent drop by MF Global Holdings Inc. in its first five days. Visa Inc. did best among the biggest deals, rising 45 percent.
Facebook and Morgan Stanley, its lead underwriter, have faced criticism for boosting the number of shares sold in the IPO by 25 percent last week to 421.2 million. They also boosted the asking price to between $34 and $38 from $28 to $35.
“Raising the price and number of shares was clearly a mistake,” said Michael Shaoul, chairman of Marketfield Asset Management in New York, which oversees more than $1.9 billion.
The first day of trading was disrupted by the “poor design” of Nasdaq OMX Group Inc.’s software for IPO auctions, Robert Greifeld, the chief executive officer of the exchange operator, said on May 20. The malfunction also prevented Nasdaq OMX from sending messages to brokerages confirming that clients’ orders went through.
Talbots Inc. (TLB) tumbled 41 percent, the most ever, to $1.51. The company ended exclusive talks to be bought by Sycamore Partners for $215 million and saying it will explore other strategic alternatives.
Chesapeake Energy Corp. (CHK) rallied 1.5 percent to $15.81. Billionaire investor Carl Icahn, known for pushing for change at the companies in which he invests, reported that he has a 7.56 percent stake in the company. The news came after the close of regular trading. Bloomberg News yesterday reported that he had become one of Chesapeake’s largest shareholders, according to a person with knowledge of the matter.
RealD Inc. (RLD) surged 2.9 percent to $11.47. The maker of three-dimensional projection gear advanced after Sony Pictures agreed to pay for 3-D glasses for showings of “Men in Black 3,” the movie opening in U.S. theaters today.
The cost of protecting against losses in shares of smaller U.S. companies is the cheapest in nine months, a sign traders expect the stocks to be hurt less than their larger counterparts from the European debt crisis.
Implied volatility, the key gauge of options prices, for puts 10 percent below the iShares Russell 2000 Index Fund (IWM) was 33.53 yesterday, according to data on six-month contracts compiled by Bloomberg. The measure reached the lowest level versus the SPDR S&P 500 ETF Trust since August this week.
Federated Investors Inc. says smaller companies are likely to be spared more losses as an expanding U.S. economy insulates their businesses from Europe’s debt crisis. About 8.4 percent of companies in the Russell 2000 get more than 10 percent of sales from the region, compared with 13 percent in the S&P 500, data compiled by Bloomberg show.
“In times of economic improvement, results for smaller companies exceed those of larger companies, and the economy is grudgingly improving right now,” Lawrence Creatura, the Rochester, New York-based manager of the Federated Clover Small Value Fund, said in a May 23 phone interview. Federated oversees $363.6 billion in client assets. Investors “need less of an insurance policy against trouble ahead,” he said.
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