U.S. Stocks Tumble Most Since February on Europe Debt Concern

The headquarters of JPMorgan Chase & Co
A U.S. flag flies outside the headquarters of JPMorgan Chase & Co. in New York, on July 16, 2009. Photographer: Daniel Acker/Bloomberg

U.S. stocks tumbled, with benchmark indexes slumping the most since February, as concern grew that Europe’s government debt crisis will spread beyond Greece. The euro slid below $1.30 for the first time in more than a year.

Alcoa Inc. sank 4.3 percent and Exxon Mobil Corp. lost 2 percent to lead raw-materials and energy producers lower as metal and oil prices slumped on a stronger dollar. Bank of America Corp. and JPMorgan Chase & Co. followed declines by banks in Europe, where Banco Santander SA, Banco Comercial Portugues SA and National Bank of Greece SA plunged at least 6.2 percent. Intel Corp. lost 3 percent to pace a tumble in chipmakers.

The Standard & Poor’s 500 Index declined 2.4 percent to 1,173.60 at 4 p.m. in New York, reaching the lowest level since March 31. The Dow Jones Industrial Average dropped 225.06 points, or 2 percent, to 10,926.77. The Nasdaq-100 Index slumped 3.1 percent, its biggest drop in more than a year, to 1,968.97. Eight stocks fell for each that rose on U.S. exchanges. The Stoxx Europe 600 Index lost 2.9 percent, erasing its 2010 gain.

“While Greece has been the poster child for fiscal issues, other countries there are still struggling,” said Michael Mullaney, who helps manage $9 billion at Fiduciary Trust Co. in Boston. “Whether it’s Spain, Portugal, Italy or Ireland, they will likely face the same kind of headwinds. In the U.S., economic and earnings figures are good. However, the stock market is ahead of itself. It’s due for a correction.”

Erased Yesterday’s Rally

Today’s retreat erased yesterday’s 1.3 percent surge in the S&P 500, the biggest rally since March 5. Stocks slumped even after U.S. factory orders unexpectedly rose in March and more Americans signed contracts to buy previously owned homes.

The 1.3 percent increase in orders placed with manufacturers matched the prior month’s gain, which was more than twice as large as previously estimated, the Commerce Department said. Signed home-purchase agreements, or pending sales, rose 5.3 percent in March, according to the National Association of Realtors.

“There is no reason to believe that production will slow in the immediate term,” Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York, wrote in a report today. “However, the pace of improvement in broad manufacturing indices is likely to slow as the year progresses.”

The S&P 500 has closed up or down by more than 1 percent on five of the past six days. Before that, the index moved that much in 2 of the previous 35 sessions, data compiled by Bloomberg show. The VIX, as the Chicago Board Options Exchange Volatility Index is known, gained 18 percent to 23.84 today, the highest level since Feb. 11. The gauge measures the cost of using options to protect against declines in the S&P 500.

‘Complete Madness’

Stocks continued to plunge after Spanish Prime Minister Jose Luis Rodriguez Zapatero said speculation of a bailout for Spain is “complete madness” and the nation has “strong solvency.” International Monetary Fund spokesman Bill Murray said there’s “no truth” to rumors about Spain. Their remarks came as a 110 billion-euro ($143 billion) rescue package to help Greece avoid default fails to ease concern that swelling sovereign debt will derail the economic recovery.

“The market is skeptical about it,” said John Praveen, the Newark, New Jersey-based chief investment strategist at Prudential International Investments Advisers LLC, which oversees $667 billion. “The market is not convinced that the recent measures will be sufficient. There’s concern that the next problem could arise in Spain or Portugal.”

The Dow average last week fell for the first time in nine weeks, breaking its longest streak of gains since 2004, as credit downgrades of Greece, Portugal and Spain spurred concern global growth will slow and as prosecutors considered opening a criminal fraud investigation against Goldman Sachs Group Inc.


“The majority of the gain for the year is pretty well complete,” said William Greiner, chief investment officer of Kansas City, Missouri-based Scout Investment Advisors, which manages $5 billion. “What put us into the mess two-and-a-half years ago hasn’t necessarily gone away. We and many other parts of the world have lived beyond our means over the last 10 or 15 years,” and debt-service costs “are going to dramatically impact our economy’s growth rate going forward.”

The S&P 500 is up 5.2 percent in 2010 and has rallied 73 percent from a 12-year low in March 2009 as the economy and corporate earnings returned to growth.

Declines in the S&P 500 were broad-based, with only 17 stocks in the index rising and 482 falling. One was unchanged.

Exxon, Alcoa

Producers of raw-materials and energy sank at least 2.6 percent. Copper fell to a nine-week low, while crude oil declined the most in three months, falling below $83 a barrel on the New York Mercantile Exchange.

Exxon Mobil, Chevron Corp. and ConocoPhillips tumbled at least 2 percent. Alcoa lost 57 cents to $12.58, the second-biggest drop in the Dow. Freeport-McMoRan Copper & Gold Inc., the world’s largest publicly traded copper producer, declined 4.4 percent to $70.49. Cliffs Natural Resources Inc., North America’s largest iron-ore producer, had the biggest decline in the S&P 500, plunging 7.5 percent to $54.55.

The euro weakened 1.6 percent against the dollar on concern a 110 billion-euro ($144 billion) rescue package for Greece will fail to contain the region’s debt crisis.

The China purchasing managers’ index released by HSBC Holdings Plc and Markit Economics declined to 55.4 from 57 in March, spurring concern demand will slow in the world’s fastest-growing major economy. The MSCI Asia Pacific Index fell 0.6 percent to a five-week low.

Dow Chemical Co., the biggest U.S. chemical maker, slumped 6.7 percent to $29.31 after UBS AG said profit margins for ethylene and related plastics are narrowing and won’t recover for years.

Industrial Companies

Industrial companies also slumped on concern about slower demand from China, falling 3.3 percent as a group.

Caterpillar Inc. had the biggest drop in the Dow, slumping 4.6 percent to $66.70. Boeing Co. and General Electric Co. retreated at least 2.2 percent.

Intel led a gauge of semiconductor companies in the S&P 500 to a 3.5 percent drop. The world’s largest chipmaker generated 17 percent of its $35.1 billion of revenue from China last year. The Philadelphia Semiconductor Index plunged 4.5 percent.

Intel dropped 3 percent to $22.56. Advanced Micro Devices Inc., the second-largest maker of microprocessors, tumbled 6.6 percent to $8.68.

Emerson Electric Co. slumped 6.4 percent to $50.18. The electrical-products maker reported second-quarter profit and sales that trailed analysts’ estimates.

Pfizer, Merck

Pfizer Inc. gained 2.1 percent to $17.26 for the biggest of only three gains in the Dow. The world’s biggest drugmaker posted adjusted first-quarter profit of 60 cents a share. Analysts surveyed by Bloomberg had estimated average earnings of 53 cents a share.

Merck & Co. rose 1.5 percent to $35.81. The second-largest U.S. drugmaker reported first-quarter earnings excluding one-time items were 83 cents a share, exceeding by 8 cents the average estimate of 13 analysts surveyed by Bloomberg. Merck forecast 2010 earnings of $3.27 to $3.41 a share, compared with the $3.40 average estimate of analysts.

About 78 percent of S&P 500 companies that have reported first-quarter results have topped the average analyst estimate for net income, according to data compiled by Bloomberg.

CareFusion Corp. gained 4.6 percent to $28.56 for the biggest increase in the S&P 500. The provider of health-care products and services was upgraded to “buy” from “neutral” by Bank of America Corp.

McKesson Corp. climbed 4.1 percent to $67.54. The pharmaceutical distributor forecast 2011 profit that topped analysts’ estimates and said it may buy back as much as $1 billion of its shares.

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