U.S. stocks fell, giving benchmark indexes the longest slump in more than a month, after a jump in Spanish bond yields above 7 percent intensified concern about Europe’s crisis and as investors awaited Alcoa Inc.’s results.
Alcoa advanced 0.2 percent at 5:46 p.m. New York time after earnings and revenue analysts’ beat estimates. Exxon Mobil Corp. (XOM) and DuPont Co. dropped more than 1.3 percent to pace losses among the biggest companies. The largest payment networks Visa Inc. (V) and MasterCard (MA) Inc. slumped at least 1.3 percent after being downgraded at UBS AG. Patriot Coal (PCX) Corp. plunged 72 percent before it filed for bankruptcy protection.
The Standard & Poor’s 500 Index slid 0.2 percent to 1,352.46 at 4 p.m. New York time. The measure dropped 1.6 percent in three days for the longest slump since June 1. The Dow Jones Industrial Average lost 36.18 points, or 0.3 percent, to 12,736.29. Volume for exchange-listed stocks in the U.S. was 5.1 billion shares, 24 percent below the three-month average.
“It’s very concerning,” said Jeff Savage, regional chief investment officer for Wells Fargo Private Bank in Portland, Oregon. His firm manages $169 billion. “Seven percent is not a sustainable level of interest rates for Spain. That’s scary stuff. We can’t have one of our best trading partners going through terrible economic times and not having an effect on U.S. corporate earnings,” he said, referring to Europe.
Stocks joined a global slump as the yield on Spain’s 10- year bond rose above the threshold that prompted bailouts in Greece, Ireland and Portugal. German Finance Minister Wolfgang Schaeuble dismissed a rapid move toward direct bank recapitalization by the European rescue fund, limiting the tools for shoring up Spanish banks as the euro-area crisis simmers.
Investors also awaited the start of the earnings season as analysts’ estimates signal the first year-over-year profit decline for S&P 500 companies since 2009. Forecasts compiled by Bloomberg show a 1.8 percent drop in profits in the second quarter. Revenue is projected to increase by 2.5 percent.
“People are too pessimistic about earnings,” said Paul Zemsky, the New York-based head of asset allocation for ING Investment Management. His firm oversees $160 billion. “We may get some better price action in the U.S. as results come in.”
Alcoa (AA), the first company in the Dow to report second- quarter results, added 0.2 percent to $8.78 after the market close. Profit excluding a restructuring charge and other items was 6 cents a share, compared with the 5-cent profit that was the average of 19 estimates compiled by Bloomberg. Sales fell to $5.96 billion from $6.59 billion, exceeding the $5.81 billion average of 11 estimates.
Advanced Micro Devices Inc. slumped 9.4 percent to $5.09 after the close of regular trading. It said second-quarter sales fell 11 percent from the previous period, reducing an earlier forecast, citing weaker-than-expected sales in China (AMD) and Europe as well as tepid consumer demand.
Today’s decline trimmed this year’s gain in the S&P 500 to 7.5 percent. Stocks fell last week as jobs data heightened concern about a slowing economy and Europe’s efforts to tame its debt crisis disappointed investors.
Eight out of 10 groups in the S&P 500 retreated as commodity and consumer discretionary shares had the biggest losses. DuPont, a U.S. chemicals producer, slumped 2.9 percent to $47.47. Exxon Mobil fell 1.4 percent to $83.65.
Visa retreated 1.3 percent to $123.65, while MasterCard declined 2.4 percent to $431.27. UBS analyst John Williams changed his rating on the firms’ shares today to sell from neutral, citing weaker U.S. economic data and a global slowdown in growth. Williams said this could harm Visa and MasterCard, which are among the top three performing shares in the S&P’s Information Technology Index (S5INFT) since 2011.
The companies’ shares “sit near all-time highs despite exposure to a weakening global consumer spending backdrop, which makes a slowdown in key metrics inevitable over the next 3 to 6 months,” Williams wrote. “Multiple data points indicate global growth is slowing -- clear negatives for the shares.”
Patriot Coal tumbled 72 percent to 61 cents as two people with knowledge of the matter said the U.S. fuel producer could seek bankruptcy protection as early as today. Patriot filed for bankruptcy after the market closed, as milder winters and a shift to natural gas sent coal demand to a 24-year low.
Navistar International Corp. (NAV) sank 3.1 percent to $23.67. The maker of International brand trucks dropped after Bloomberg Industries said truckmakers will need to reduce production in the second half of the year.
The Bloomberg U.S. For-Profit Education Index (USEDU) of 13 stocks tumbled 4.7 percent. Bridgepoint Education Inc. (BPI) plunged 34 percent to $14.25. The for-profit college company that owns Ashford University tumbled after Ashford’s accreditation application was denied by a regional accreditor.
A measure of health-care stocks had the biggest gain among 10 S&P 500 groups, rising 0.6 percent, amid takeover optimism.
Amerigroup Corp. (AGP) surged 38 percent to $88.79. WellPoint (WLP) Inc., the second-biggest U.S. health insurer, agreed to buy the company for $4.9 billion in cash to expand the number of Medicaid patients it serves as the U.S. health plan for the poor undergoes broad changes in how it is managed.
WellPoint added 3.4 percent to $61.95. The deal also boosted the value of other insurers focusing on Medicaid. WellCare Health Plans Inc. (WCG) soared 18 percent to $62.56. Molina Healthcare Inc. (MOH) rallied 18 percent to $27.12.
Apple Inc. (AAPL) rose 1.3 percent to $613.89. The world’s most valuable company may sell 4 million to 6 million still-to-be- released smaller iPad tablets in this year’s fourth-quarter holiday season, according to Piper Jaffray Cos. The firm rates Apple overweight, the equivalent of a buy recommendation.
“We believe the smaller iPad, while potentially cannibalizing 10 percent of full size iPad sales, could take 30 percent of total Android tablet sales in the December quarter,” Gene Munster, an analyst for Piper Jaffray, said in a note.
Boeing Co. (BA) added 0.5 percent to $74.03. It is set to win an order this week from United Continental Holdings Inc. for 100 of the planemaker’s 737 jets in a transaction that may be valued at about $8.4 billion, people familiar with the matter said.
The same securities analysts warning of the first decline in quarterly earnings since 2009 are also more bullish than ever on U.S. stocks.
A total of 247 companies in the S&P 500 have more buy ratings than sells and holds, a record in Bloomberg data starting in 2000. Bullish recommendations have been expanding even as Wall Street firms cut their forecast for second-quarter net income in the U.S. to a decrease of 1.8 percent from a gain of 2 percent in April, estimates compiled by Bloomberg show.
Bulls vs Bears
Bears say rising equity volatility, declining profits and the approaching U.S. presidential election mean the 4.5 percent drop in the S&P 500 since April will continue. Bulls say analysts are advising clients to buy because earnings are still on track to reach a record this year and the index is trading 16 percent below its average valuation since the 1950s.
“My picks aren’t based on one quarter,” Howard Rubel, a New York-based equity analyst at Jefferies & Co., said in a July 5 phone interview. “It’s not always captured in a headline how many pieces of judgment one needs to incorporate into a stock recommendation, and a quarterly earnings report is only one item. You have to look at things over a period of time.”
The last time earnings and share ratings diverged was the third quarter of 2009, when the S&P 500 was six months into a rally that lifted it more than 100 percent through April 2012. Analysts predicted a 23 percent drop in S&P 500 annual profit, while 205 companies in the index had more buy ratings than sells and holds. The June-to-August period that year was the index’s last quarter of negative earnings growth.
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