U.S. Stocks Drop Amid Lower Retail Sales, Europe Concern

U.S. stocks slid, after yesterday’s gain, as retail sales fell and concern about Europe’s debt crisis grew amid higher borrowing costs in Italy and Germany.

Nine out of 10 groups in the Standard & Poor’s 500 Index retreated as consumer discretionary, commodity and industrial shares had the biggest losses. Home Depot Inc. (HD), Caterpillar (CAT) Inc. and DuPont (DD) Co. dropped at least 1.5 percent. JPMorgan Chase & Co. (JPM) rose 1.6 percent as Chief Executive Officer Jamie Dimon testified about his bank’s practices to lawmakers. Dell Inc. (DELL) advanced 2.6 percent after saying it will pay a dividend.

The S&P 500 fell 0.7 percent to 1,314.88 at 4 p.m. New York time. It rose 1.2 percent yesterday. The Dow Jones Industrial Average declined 77.42 points, or 0.6 percent, to 12,496.38. Trading volume for exchange-listed stocks in the U.S. was about 6.1 billion shares, 10 percent below the three-month average.

“It’s a tough recipe,” Burt White, who oversees $390 billion as chief investment officer at LPL Financial Corp. in Boston, said in a telephone interview. “Consumers are starting to question the validity of this recovery and beginning to plan for tougher times. At the same time you have global austerity. You’re getting more recessionary pressures throughout Europe and borrowing costs are moving higher. Things are deteriorating.”

Equities fell as retail sales dropped in May for a second month, as limited job and income gains hold back consumers. Euro-area industrial production declined for a second month in April, led by a drop in Germany, adding to signs of a deepening economic slump. The Group of 20 nations meeting in Mexico next week probably won’t announce significant progress on Europe’s debt crisis, a U.S. official said.

Greece’s Election

Investors also watched the latest developments ahead of Greece’s elections on June 17. Alexis Tsipras, whose Syriza party in Greece is vying for first place in pre-election polls, said he expects the European Union will do all it can to keep the nation in the euro even if he wins elections and carries out his promise to repeal the austerity measures required to receive emergency loans.

The S&P 500 (SPX) briefly rose as banks rallied. JPMorgan jumped 1.6 percent to $34.30 as Chief Executive Officer Jamie Dimon testified about his bank’s $2 billion trading loss. He said a switch to a new risk model in the first quarter may have helped fuel the loss, and the bank has shifted back to the old system.

“Dimon is not putting his foot in his mouth,” said Rick Fier, director of equity trading at Conifer Securities LLC in New York. His firm oversees more than $12 billion. “The bid in JPMorgan today is more because he didn’t say anything to get into him into any more trouble. Still, we’re not really seeing people chase this market. What managers are talking about the most is: where’s the growth going to come from?”

Most-Tied

The Morgan Stanley Cyclical Index (CYC) of companies most-tied to the economy lost 1.5 percent. Home Depot, the largest U.S. home- improvement retailer, lost 2.4 percent to $50.97. Caterpillar, the world’s largest maker of construction equipment, dropped 2 percent to $85.29. DuPont, a chemicals producer, fell 1.6 percent to $49.11.

Progressive Corp. (PGR) slumped 4.4 percent to $20.74. The fourth-largest U.S. auto insurer fell as claims costs rose above the company’s target.

Global Payments Inc. (GPN) retreated 4.1 percent to $40.48. The bank-card processor disclosed that “intruders” may have hacked into company servers containing personal information.

Casey’s General Stores Inc. (CASY) tumbled 13 percent, the most since 2008, to $52.18. The operator of convenience stores in the U.S. Midwest reported fourth-quarter earnings that trailed analysts’ estimates, citing a decline in gasoline profits.

Cut Costs

Dell rallied 2.6 percent to $12.28. The quarterly payout of 8 cents a share will begin in the period that ends in October. The dividend’s yield would be 2.7 percent, based on the stock’s closing price yesterday. The company will focus on data-center gear as well as computing software and services while seeking to cut costs by more than $2 billion over the next three years.

Johnson & Johnson (JNJ) gained 2.2 percent to $64.45. The company said its $19.7 billion purchase of Synthes Inc., the largest acquisition in its 126-year history, will add 3 cents to 5 cents a share to 2012 earnings as it gained U.S. clearance for the deal. Separately, the shares were upgraded at Jefferies Group Inc. and Raymond James Financial Inc.

The S&P 500 may decline more than 5 percent by the end of July before starting a rebound that may continue into the third quarter, according to technical analysts at UBS AG.

Third Wave

The analysts cited the average directional index indicator, or ADX, approaching the end of a third wave -- the momentum top of a trend. The ADX is the moving average of the directional movement indicator, a theory developed by J. Welles Wilder in 1978 that measures how far a security moves from an average price range calculated from second to second.

“We still see the risk of another setback towards 1,250 into the second half of July as the basis for a longer lasting corrective rebound into at least September,” Michael Riesner and Marc Mueller in Zurich wrote in a note dated yesterday. “On the back of our overbought momentum work we see further upside to be limited towards a maximum 1,358” for the rally.

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

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