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U.S. Stocks Fall on Europe Woes as Home Data Disappoint

By Rita Nazareth - 2012-05-30T20:49:12Z

U.S. stocks fell, putting the Standard & Poor’s 500 Index on pace for its worst month since September, as housing data disappointed and concern grew about Greece’s future in the euro and the health of Spanish banks.

A measure of homebuilders in S&P indexes sank 4.9 percent. Sears Holdings Corp. (SHLD) slumped 9 percent, pacing declines in retail stocks, ahead of tomorrow’s industrywide monthly sales report. Research In Motion Ltd. (RIMM) dropped 7.8 percent after forecasting a surprise operating loss and hiring banks to advise on strategic options. Facebook Inc. (FB) retreated 2.3 percent, extending its decline since it went public to 26 percent.

The S&P 500 slid 1.4 percent to 1,313.32 at 4 p.m. New York time. The Dow Jones Industrial Average fell 160.83 points, or 1.3 percent, to 12,419.86. The Russell 2000 Index dropped 2 percent to 762. The Chicago Board Options Exchange Volatility Index soared 15 percent to 24.14 for the biggest rally since March 6. About 6.4 billion shares changed hands on U.S. exchanges, or 5.5 percent below the three-month average.

“It’s a high-anxiety market,” said Hayes Miller, who helps oversee about $48 billion as the Boston-based head of asset allocation in North America at Baring Asset Management Inc. “We’re not anywhere near the end of Europe’s debt crisis. In the U.S., economists are making the point that if housing were to stabilize, consumption could grow. The question is: what’s going to allow the housing market to stabilize?”

Global equities tumbled, U.S. Treasury 10-year yields slid to a record and the euro weakened to a two-year low. The number of Americans signing contracts to buy previously owned homes fell in April by the most in a year. An opinion poll showed most Greeks want to see the terms of a financial rescue revised.

Spanish Debt

Costs to protect Spanish government debt with default swaps climbed to a record. The European Central Bank denied it has rejected a plan floated by the Spanish government to recapitalize Bankia group, saying it hasn’t been approached. The Spanish government itself has backtracked on an idea to recapitalize Bankia by injecting sovereign debt into its parent company that, according to the Financial Times, could then be used as collateral to borrow from the ECB.

Concern about Europe’s debt crisis drove the S&P 500 down 6.1 percent so far in May. Financial, commodity and technology companies have fallen at least 7.2 percent in the period. The gauge is on pace for a second straight monthly decline, following the best first-quarter gain since 1998. (SPX)

“What you’re seeing is worry about how this really plays out and whether Europe has the ability to even solve the problem at this point,” said Madelynn Matlock, who helps oversee about $14.7 billion at Huntington Asset Advisors in Cincinnati.

Biggest Losses

Commodity, financial and industrial shares fell the most among 10 groups in the S&P 500 today. Bank of America Corp. (BAC) slid 3.2 percent to $7.20. Alcoa Inc. (AA), the largest U.S. aluminum producer, dropped 3.5 percent to $8.58. Caterpillar Inc. (CAT), the biggest maker of construction equipment, decreased 2.5 percent to $90.18. The Morgan Stanley (MS) Cyclical Index of companies most- tied to the economy lost 2.5 percent. Homebuilder Lennar Corp. (LEN) fell 6.7 percent to $26.82.

Thirty of 32 companies in the S&P 500 Retailing Index (S5RETL) retreated, sending the gauge down 1.6 percent. The International Council of Shopping Centers, a trade group that tracks retailers, today cut its monthly U.S. same-store sales forecast to 2 percent from 3 percent, citing weakened consumer confidence leading to a slowdown in discretionary spending.

Sears lost 9 percent to $52.34 for the biggest drop in the S&P 500. Kohl’s Corp. (KSS) slumped 3.6 percent to $48.82. Macy’s Inc. (M) fell 1.8 percent to $38.30.

RIM Slumps

RIM sank 7.8 percent to $10.35, the lowest level since 2003. An exodus of customers to Apple Inc.’s iPhone and Google Inc.’s Android devices has taken a toll on sales and profit, putting pressure on management to make changes. An operating loss would be the company’s first since 2004.

Facebook lost 2.3 percent to $28.19, after yesterday slipping below $30 for the first time. The recent slide in the stock that has cost investors $25 billion may not end until the shares drop another 20 percent, leaving the company’s valuation on par with competitors that also do business over the Internet.

The company is trading at 29.5 times its projected 2014 profit of $2.69 billion, data compiled by Bloomberg show. The stock would have to dive to $23.07 to match the average price- to-earnings ratio for the Nasdaq Internet Index (QNET) based on estimated earnings in the next 12 months, according to the data.

Investors have pummeled the shares, citing concern over growth prospects for the largest social-networking service. Shareholders filed lawsuits that said the company and its underwriters overpriced Facebook at $38 a share. The IPO gave Facebook a higher multiple than 99 percent of the S&P 500.

‘Significant Premium’

“It could fall quite significantly because it was priced at a significant premium,” Sameet Sinha, an analyst at B. Riley & Co., said in a telephone interview yesterday. “Such stocks, when they go out of favor, tend to fall before stabilizing.”

EBay Inc. (EBAY) sank 4.6 percent, the most since November, to $39.59. The largest online marketplace dropped after an analyst said second-quarter sales may miss estimates due to a slowdown in U.S. e-commerce spending growth. Sales for the quarter ending in June will be $3.33 billion, according to a projection today by Investment Technology Group Inc. That’s less than the average $3.37 billion analyst estimate compiled by Bloomberg.

Pep Boys -- Manny, Moe & Jack (PBY) plunged 20 percent to $8.89, the lowest level since August. The auto-parts chain slumped after ending its proposed $1 billion sale to Gores Group LLC, which questioned the deal earlier this month following lower- than-expected earnings.

Washing Machines

Whirlpool Corp. (WHR) gained 0.5 percent to $63.13. The shares surged as much as 4.2 percent earlier today as the U.S. Commerce Department proposed duties of as much as 71 percent on large, residential washing machines made in South Korea, concluding that government subsidies for the goods undercut U.S. producers.

Monsanto Co. (MON) rallied 2.2 percent to $76.41. The world’s largest seed company said third-quarter profit will exceed analysts’ estimates on rising sales in the U.S., Brazil and Eastern Europe. The company also boosted its full-year forecast.

Apple Inc. (AAPL), the world’s most valuable company, gained 1.2 percent to $579.17. Chief Executive Officer Tim Cook said that television is an area of “intense focus” for the company as it seeks to add products that can build on the success of Macs, iPhones and iPads.

“This is an area of intense focus for us,” Cook said of TV in an on-stage interview yesterday at the D10 conference in Rancho Palos Verdes, California. “We’re going to keep pulling this string and see where it takes us.”

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

Enlarge image

U.S. Stocks Fall on Greek Concern as Housing Data Disappoints

Richard Drew/AP Photo

Fear about Europe's financial stability caused traders to retreat from most investments seen as risky Wednesday, punishing U.S. stocks and pushing the yield on the benchmark 10-year Treasury note to a record low.