U.S. stocks fell, sending the Standard & Poor’s 500 Index down for a fourth straight day, after European Central Bank President Mario Draghi failed to reassure investors on immediate efforts to bolster the economy.
Alcoa Inc. (AA), JPMorgan (JPM) Chase & Co. and DuPont Co. dropped at least 1.8 percent to pace losses in the biggest companies. Knight Capital Group Inc. plunged 63 percent after saying losses from a trading breakdown are $440 million, more than some analysts had estimated, as it explores strategic and financial alternatives. General Motors Co. (GM) slid 2.6 percent as the automaker said second-quarter profit slumped 38 percent.
About five stocks fell for every three that rose on U.S. exchanges at 4 p.m. New York time. The S&P 500 lost 0.7 percent to 1,365, dropping 1.5 percent in four days. The Dow Jones Industrial Average declined 92.18 points, or 0.7 percent, to 12,878.88. Volume for exchange-listed stocks in the U.S. was 7.3 billion shares, or 8.6 percent above the three-month average.
“It’s status quo,” 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. He spoke on a phone interview. “I don’t know why people feel that authorities can come up with magic solutions. I don’t know that the magic bullet exists. There are limits to what the ECB can do.”
Stocks joined a global slump as Draghi signaled the ECB intends to join forces with governments to buy bonds in sufficient quantities to ease the region’s crisis, while conceding that Germany’s Bundesbank has reservations about the plan. Details on the plan will be fleshed out in coming weeks, he said after keeping the interest rate on hold at 0.75 percent.
Yesterday, the American central bank also failed to bolster confidence. The Federal Reserve’s pledge to provide additional support for the economy disappointed investors anticipating a more definitive sign of further monetary easing. The S&P 500 (SPX) rose as much as 29 percent from its October 2011 low amid bets the central bank would add economic stimulus.
Tomorrow’s jobs report may provide more direction toward the Fed’s next steps to ensure the recovery is not derailed. Payrolls rose by 100,000 after an 80,000 gain in June and the unemployment rate held at 8.2 percent, according to a Bloomberg survey. Data today showed orders placed with U.S. factories unexpectedly fell and jobless claims rose less than forecast.
Pacific Investment Management Co.’s Mohamed El-Erian said the world economy is suffering its severest slowdown since the recession ended in 2009. The chief executive officer of Pimco predicted global growth of 2.25 percent over the next 12 months. That’s down from the 3.9 percent in 2011 and 5.3 percent in 2010 recorded by the International Monetary Fund. The world economy contracted 0.6 percent in 2009.
“This is a serious, synchronized slowdown,” El-Erian said in an interview today.
Companies which are most-dependent on economic growth tumbled today, with the Morgan Stanley Cyclical Index slumping 1.1 percent. Nine of 10 groups in the S&P 500 retreated as commodity companies had the biggest losses. Alcoa, the largest U.S. aluminum producer, slipped 3 percent to $8.18. JPMorgan dropped 2.3 percent to $35.17. DuPont, a chemical maker, declined 1.8 percent to $49.02.
Investors watched the latest developments with Knight Capital. The shares plunged 63 percent to $2.58, extending a two-day tumble to 75 percent. Knight has “all hands on deck” and is in close contact with clients and counterparties as it tries to weather trading errors that cost it $440 million, Chief Executive Officer Thomas Joyce said.
Joyce said it’s “hard to comment” on discussions with creditors and the firm explored strategic and financial alternatives following a loss almost four times its annual profit. The problems were triggered by what Joyce called “a bug, but a large bug” in software as the company, one of the largest U.S. market makers, prepared to trade with a New York Stock Exchange program catering to individual investors.
Investors also watched second-quarter corporate earnings. About 73 percent of companies which reported quarterly results have beaten analysts’ estimates, according to data compiled by Bloomberg. Sales missed estimates at 59 percent of companies.
GM slumped 2.6 percent to $19.14. The automaker faces rising losses in Europe and a stagnating China market. Overseas challenges threaten to undercut the company’s recovery even as its domestic market is on pace for the best year since 2007.
Abercrombie & Fitch Co. (ANF) plunged 15 percent to $29.06, the lowest since 2009. The teen retailer with more than 1,000 stores cut its annual forecast yesterday, citing an anticipated drop in same-store sales in the second half of 2012.
Monster Worldwide Inc. (MWW) declined 14 percent to $6.10. The Internet recruiting service exploring a possible sale forecast earnings that fell short of analysts’ predictions, citing European economic weakness.
Apache Corp. (APA) dropped 4.9 percent to $82.58. The independent oil and natural-gas producer reported second-quarter profit that trailed analysts’ estimates after energy prices fell and maintenance hampered production.
Parker Hannifin Corp. (PH) slid 3.3 percent to $78.85 after the maker of fluid power systems and air-conditioning products forecast annual earnings lower than some analysts’ estimates amid a demand slump in Europe.
DirecTV (DTV) fell 2.6 percent to $48.80. The largest U.S. satellite-television provider reported second-quarter profit that trailed analysts’ estimates after posting the company’s first net decrease in U.S. subscribers.
Sealed Air Corp. (SEE) sank 17 percent, the biggest decline in the S&P 500, to $13.15. The maker of Bubble Wrap posted second- quarter earnings that trailed analysts’ estimates and announced plans to pursue “strategic options.”
Navistar International Corp. (NAV) dropped 13 percent to $21.44. The maker of International brand trucks disclosed a U.S. Securities and Exchange Commission inquiry and withdrew its full-year earnings forecast.
Bristol-Myers (BMY) slumped 8.6 percent, the most since 2002, to $32.55. The company lost ground in the race to develop a stand- alone hepatitis C pill after it suspended testing of an experimental drug for the disease that cost it $2.5 billion to buy earlier this year.
Separately, executive Robert Ramnarine was charged with insider trading for making $311,361 in illegal profit by buying stock options in three companies targeted for acquisition.
Facebook Inc. (FB) dropped 4 percent to $20.04, a record low. The shares are 47 percent below their initial public offering price of $38. The world’s largest social-networking service last week reported earnings that showed slowing growth.
Gap (GPS) Inc. and Macy’s Inc. (M) posted July same-store sales that beat estimates as promotions and warm weather boosted shopping traffic. Gap, the biggest U.S. specialty-apparel retailer, climbed 13 percent to $33.17. Macy’s, owner of its namesake and Bloomingdale’s department stores, added 3.8 percent to $36.40.
First Solar Inc. (FSLR) surged 21 percent, the biggest advance in the S&P 500, to $17.93. The world’s biggest maker of thin-film panels said profit jumped 81 percent after it recognized revenue for selling power plants.
Time Warner Cable Inc. (TWC) added 2.7 percent to $87.94. The second-largest U.S. cable-television provider reported second- quarter profit that beat analysts’ estimates after gaining broadband Internet subscribers.
Green Mountain Coffee Roasters Inc. (GMCR) rallied 27 percent to $22.66. The maker of Keurig brewers and single-serve pods said third-quarter profit rose 30 percent and it will repurchase as much as $500 million in shares over the next two years.
Yelp Inc. (YELP) added 17 percent to $22. The online review website reported second-quarter sales that topped estimates as an expansion into new regions helped widen its user base.
Jeremy Siegel, author of “Stocks for the Long Run”, said Bill Gross, who runs the world’s biggest bond fund at Pimco, is wrong when he compares long-term returns from equities investing to a “Ponzi scheme.”
“I like Bill Gross a lot, but he’s got the economics wrong,” Siegel said on Bloomberg Television’s “In the Loop” with Betty Liu. Siegel is “obviously pushing at windmills,” Gross said today in an interview with Liu. “He belongs back in his ivory tower,” Gross said.
In his monthly investment outlook July 31, Gross said that the so-called Siegel Constant, which purports to show a long- term history of inflation-adjusted equity real returns of 6.6 percent since 1912, may be a “historical freak” unlikely to be seen again. Presuming a 2 percent return for bonds and 4 percent nominal returns for stocks, a diversified portfolio produces a nominal return of 3 percent and inflation-adjusted returns near zero, Gross, who manages the $263.4 billion Total Return Fund (PTTRX) at Pimco, wrote in the outlook.
“Those that are looking for double-digit returns for stocks to pay education, to pay for retirement, are bound to be disappointed and that’s why the cult of equity is dead,” Gross said today in the interview with Liu. “It’s hard to see how corporations and stocks can continue to earn 3 percent more than GDP going forward and that’s only common sense.”
To contact the reporter on this story: Rita Nazareth in New York at firstname.lastname@example.org
To contact the editor responsible for this story: Lynn Thomasson at email@example.com