U.S. stocks dropped for a second day as a reduction in Greece's debt rating and a $3.65 billion loss by a Dubai developer added to concern that global credit markets are struggling to recover.
Energy and raw-materials producers helped lead the decline as the U.S. dollar appreciated, pushing down prices of oil, copper and gold. McDonald's Corp. fell the most since July after the world's largest restaurant company said global sales showed the smallest increase in five years in November. Kroger Co. slid as much as 15 percent, the most in eight years, after cutting its full-year profit forecast.
The Standard & Poor's 500 Index lost 0.9 percent to 1,093.91 at 12:30 p.m. in New York. The Dow Jones Industrial Average slipped 95.6 points, or 0.9 percent, 10,294.51. About three stocks fell for each that rose on the New York Stock Exchange. European stocks and most Asian shares also dropped.
"Fear that problems in Dubai and countries of that nature might tar some of our financial institutions, psychologically if not fundamentally, is weighing on the markets," said Stanley Nabi, vice chairman of Silvercrest Asset Management Group in New York. Silvercrest manages $7.5 billion.
U.S. stocks declined yesterday as investors speculated the economy isn't growing fast enough to shield banks from losses on commercial real estate. Financial shares led the retreat after Federal Reserve Chairman Ben S. Bernanke said the economy faces "formidable headwinds."
Record-low interest rates and about $12 trillion in spending by governments worldwide have spurred a 62 percent rally in the S&P 500 since March 9. The measure is valued at about 22 times its companies' reported operating earnings, near the highest since 2002, according to data compiled by Bloomberg.
2010 Rally Prediction The S&P 500 may rally another 13 percent to 1,250 by the end of next year as interest rates remain low, revenue grows and investors pour money into U.S. stocks, Goldman Sachs Group Inc. strategists including David Kostin wrote in a report.
"Continued profit margin resiliency from prior aggressive cost reductions should drive strong returns in early 2010 and push the S&P 500 towards 1,300," the report said. The rally may stall during the second half of the year as investors begin to anticipate a series of interest-rate increases by the Federal Reserve, the strategists said.
Fitch downgraded Greece's credit rating one step to BBB+, the third-lowest on the investment-grade scale, and said the outlook for the rating is negative. Standard & Poor's yesterday put the country's rating on watch for a possible downgrade.
Debt Concern Moody's Investors Service, the third major credit rating agency, today said deteriorating public finances in the U.S. and U.K. may "test the Aaa boundaries" for their debt ratings.
The reliability of sovereign credit has been under heightened scrutiny since Nov. 25, when Dubai World, a state- owned holding company, said it would seek a standstill agreement on its debt. Dubai World has since said it's in talks to renegotiate $26 billion of loans.
Nakheel PJSC, the Dubai World property developer, had a first-half loss of 13.4 billion dirhams ($3.65 billion) as revenue fell and it wrote down the value of land and property, according to a document obtained by Bloomberg News.
Debt restructuring by Dubai state-run companies may almost double to $46.7 billion as more of the emirate's businesses need help making payments, Morgan Stanley said.
Exxon Mobil Corp. (XOM), the biggest U.S. oil company, was the largest drag on the S&P 500 as the price of crude oil fell 1.5 percent to $72.82, a two-month low on a closing basis. Energy companies in the index lost 1.4 percent collectively, the biggest drop among 10 industry groups. Exxon Mobil slid 1.3 percent to $72.80. Kroger, McDonald's Purveyors of consumer staples fell 1.2 percent, led by Kroger (KR), which slumped 11 percent to $20.39. The largest U.S. grocer reported a third-quarter loss from lower food prices and a $1.05 billion writedown stemming primarily from a goodwill impairment in its Ralph's division.
McDonald's (MCD) declined 2 percent to $60.72, accounting for 9.1 points of the Dow average's retreat. Global sales at stores open at least 13 months rose 0.7 percent last month, compared with a 2.2 percent average estimate from analysts at Oppenheimer & Co., Janney Montgomery Scott LLP and Robert W. Baird & Co.
3M Co. (MMM), the maker of 55,000 products from Post-It Notes to respiratory masks, retreated 1 percent after its forecast trailed some analysts' estimates.
Kimco Realty Corp. (KIM) dropped 4 percent to $12.56 after the largest U.S. owner of community shopping centers said it plans to sell 25 million shares of common stock. Kimco will use money raised from the sale to partially repay borrowings under its $1.5 billion unsecured credit line, which is due to mature in October 2011.
Media Stocks Gain Meredith Corp. (MDP) rose 1.6 percent to $29.15. The publisher of Better Homes and Gardens magazine increased its second-quarter profit forecast, saying it expects to earn at least 40 cents a share. The new projection topped the 37-cent average estimate from analysts in a Bloomberg survey.
Other media stocks also gained. Gannett Co. (GCI), publisher of USA Today and the Cincinnati Enquirer, climbed 6.9 percent to $11.86 for the biggest advance in the S&P 500. New York Times Co. (NYT) rose 2.1 percent to $9.09.
Motorola Inc. (MOT) added 5.7 percent to $8.59. The largest U.S. mobile-phone maker was rated new "outperform" by Sanford C. Bernstein & Co. analyst Pierre Ferragu, who set a 12-month price target of $11.
FedEx Rallies FedEx Corp. (FDX) rose 3.1 percent to $90.24. The second-largest U.S. package-shipping company said it will report earnings of $1.10 a share for the fiscal second quarter, exceeding its previous forecast of 95 cents a share at most.
TD Ameritrade Holding Corp. (AMTD), the third-largest brokerage for individual investors by assets, expects a slowdown in equity trading next year as share prices swing less than in 2009.
Stock-market volatility surged in November 2008, with the Chicago Board Options Exchange Volatility Index reaching a high of 80.86, as the collapse of Lehman Brothers Holdings Inc. added to the financial crisis that has led to $1.72 trillion in writedowns and credit-related losses worldwide. Traders, taking advantage of the price swings, bought and sold more shares, helping bring in more money for TD Ameritrade, where commissions and transaction fees account for more than half of revenue.
A decline in volatility that began this quarter will probably continue through the end of the company's fiscal year in September 2010, curbing the number of transactions by TD Ameritrade's customers, Chief Executive Officer Fred Tomczyk said in an interview.