S&P 500 Has Biggest Drop Since November on Europe Concern

Feb. 4 (Bloomberg) -- Bloomberg's Dominic Chu examines the impact of Super Bowl ads on a company's stock performance. He speaks on Bloomberg Television's "In The Loop."

U.S. stocks fell, driving the Standard & Poor’s 500 Index to its biggest decline since November, on concern that the European debt crisis may intensify.

All 10 groups in the S&P 500 fell at least 0.5 percent. Wal-Mart Stores Inc. (WMT) dropped 1.2 percent as JPMorgan Chase & Co. cut its rating on the stock. Gannett Co. erased 6.7 percent on concern that TV revenue growth won’t be enough to compensate for weak print advertising. Herbalife Ltd. rose 1.3 percent, rebounding from a decline of as much as 12 percent, after the Federal Trade Commission corrected an erroneous statement that said the company was the subject of a law-enforcement probe.

The S&P 500 slipped 1.2 percent, the most since Nov. 14, to 1,495.71 in New York, after reaching a five-year high last week. The Dow (INDU) Jones Industrial Average lost 129.71 points, or 0.9 percent, to 13,880.08. More than 6.3 billion shares traded handed on U.S. exchanges today, in line with the three-month average.

“There’s some profit-taking happening,” Matthew Swaim, a fund manager at Chicago-based Advisory Research Inc., which oversees $9 billion in assets, said by telephone. “People are drawing a corollary to the last couple years where in the spring Europe started taking the limelight again and that caused a drop in our markets.”

Photographer: Jin Lee/Bloomberg

Traders work on the floor of the New York Stock Exchange on Feb. 4, 2013. Close

Traders work on the floor of the New York Stock Exchange on Feb. 4, 2013.

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Photographer: Jin Lee/Bloomberg

Traders work on the floor of the New York Stock Exchange on Feb. 4, 2013.

The S&P 500 rallied 5 percent last month as lawmakers reached a budget compromise and companies reported better-than- estimated earnings. The Dow climbed above the 14,000-level last week for the first time since 2007, and is 2 percent away from its all-time high.

Earnings Season

Yum! Brands Inc. and Sysco Corp. are among 13 companies in the S&P 500 that report earnings today. About 73 percent of the 264 companies from the gauge that have released results this earnings season have exceeded profit projections, and 66 percent have beaten sales estimates, according to data compiled by Bloomberg.

The Stoxx Europe 600 Index slid 1.5 percent today. Spanish Premier Mariano Rajoy is facing opposition calls to resign amid contested reports about illegal payments, while Deutsche Bank AG said this year’s rally in Italian, as well as Spanish, bonds may falter as Italy’s Silvio Berlusconi narrowed the front-runner’s lead before elections this month.

Spanish 10-year government yields jumped 23 basis points to 5.44 percent. Yields on similar-maturity Italian debt rose 14 basis points to 4.47 percent.

Factory Orders

Orders placed with U.S. factories increased less than forecast in December, reflecting a drop in non-durable goods that overshadowed gains in construction equipment and computers. Bookings climbed 1.8 percent after a revised 0.3 percent drop in November that was initially reported as unchanged, Commerce Department figures showed. The Bloomberg survey median called for a 2.3 percent gain.

The recent rally in U.S. stocks has made the benchmark S&P 500 look overvalued given the slow pace of the country’s economic recovery, Patrick Legland, Societe Generale SA’s head of research, wrote in a note. The “risk-on mode” may end soon with a lack of positive economic data, Legland wrote.

The Chicago Board Options Exchange Volatility Index, known as the VIX, jumped 14 percent to 14.67 today for the biggest gain of the year, trimming its 2013 decline to 19 percent. The Morgan Stanley Cyclical Index of 30 U.S. companies most tied to economic growth slid 1.4 percent, the most since November.

Technology, financial and consumer discretionary companies fell the most out of 10 S&P 500 groups, losing at least 1.2 percent. The KBW Bank Index of 24 U.S. lenders slumped 1.2 percent.

Chevron Rating

Wal-Mart fell 86 cents to $69.63 as JPMorgan downgraded its rating on the stock to neutral from overweight, a rating similar to buy. The brokerage also reduced its price target for the stock to $75 from a previous estimate of $84.

Gannett lost $1.33 to $18.51. The owner of 82 U.S. daily newspapers and 23 television stations said TV sales for the first quarter of this year should have percentage growth in the “high single-digits” from a year earlier. That’s a slowdown from 46 percent growth to $280.2 million in the fourth quarter.

McGraw-Hill Cos. sank 14 percent to $50.30. The U.S. Justice Department intends to file a civil lawsuit against S&P based on ratings in 2007 of certain collateralized debt obligations, the company said today. The Justice Department and state prosecutors may file civil charges this week against S&P, owned by McGraw-Hill, alleging wrongdoing in its ratings of mortgage bonds in the lead up to the 2008 financial crisis, according to two people familiar with the matter.

“A DOJ lawsuit would be entirely without factual or legal merit,” the company said in a statement.

Chevron Falls

Chevron Corp. (CVX) lost 1.1 percent to $115.20. UBS cut its recommendation on the second-largest U.S. energy company to neutral from buy, citing the stock’s recent rally. The shares have gained 6.5 percent this year.

Oracle Corp. slipped 3 percent to $35.13. The largest maker of database software agreed to buy Acme (APKT) Packet Inc. for $1.7 billion, or $29.25 a share. Acme surged 24 percent to $29.59. Acme’s tools to transmit voice and video via the Web may help Oracle challenge Cisco Systems Inc. in networking -- a market that’s benefiting from the boom in mobile devices.

Merck & Co. (MRK) lost 2.3 percent to $40.85. The second-largest U.S. drugmaker was cut to underweight from equalweight by Morgan Stanley, which cited concern the company’s Improve-It study of cholesterol drug Vytorin may fail when interim data is reviewed in March, hurting chances for experimental drug anacetrapib.

Sysco Slumps

Sysco slumped 2.7 percent to $31.23. The distributor of food to restaurants, hospitals and schools reported second- quarter adjusted earnings that missed analysts’ projections by 1 cent.

Herbalife, the marketer of nutritional supplements that hedge-fund manager Bill Ackman has called a pyramid scheme, rose 47 cents to $35.54. Shares of the company rebounded after the FTC corrected a statement that erroneously said the company was the subject of a law-enforcement probe. The New York Post reported earlier, citing the FTC’s response to a freedom of information request, the company is the subject of a probe as it received as many as 192 complaints over the past seven years.

Humana Inc. jumped 4.7 percent to $78.86. The health-care company reported fourth-quarter earnings of $1.19 a share, exceeding the $1.07 a share estimated by analysts on average.

Options Trading

U.S. options trading posted its second-best start to a year on record after the stock market rally to near-record highs drove investors to seek protection from losses.

An average of 17.2 million options traded daily in the U.S. in January, the highest level for the start of a year except for a record in 2011, according to the Options Clearing Corp. The volume represents an 8.2 percent increase from the full-year 2012 average.

Investors are taking advantage of the cheapest options in 5 1/2 years to protect against losses as the U.S. economy unexpectedly shrank in the fourth quarter and the S&P 500 reached its highest valuation in 18 months. Options trading has also increased as investors try to boost returns by selling contracts in order to collect a premium, according to Marko Kolanovic, global head of derivatives and quantitative strategy at JPMorgan Chase & Co.

To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net; Leslie Picker in New York at lpicker2@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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