July 1 (Bloomberg) -- U.S. stocks fell, sending the Standard & Poor’s 500 to a nine-month low, as weaker-than-estimated data on manufacturing and home sales fueled concern that the economic recovery is in peril.
Bank of America Corp., General Electric Co. and Merck & Co. lost at least 1.5 percent to lead declines in the Dow Jones Industrial Average, which slid for a sixth day, its longest streak in almost 18 months. UnitedHealth Group Inc. and Humana Inc. fell at least 1.9 percent. United Parcel Service Inc. and FedEx Corp. increased more than 1.9 percent after both were raised to “buy” from “neutral” at UBS AG.
The S&P 500 lost 0.3 percent to 1,027.37 as of 4 p.m. in New York and earlier fell as low as 1,010.91, its weakest intraday level since Sept. 4. The index pared the drop of as much as 1.9 percent amid speculation recent declines have made stocks cheap compared with estimates for earnings growth. The Dow decreased 41.49 points, or 0.4 percent, to 9,732.53.
“Markets are down because we’re getting a little bit softer economic data,” said Michael Vogelzang, who helps manage $1.7 billion as chief investment officer at Boston Advisors in Boston. “Numbers are pretty much disappointing across the board.”
The S&P 500 has tumbled 16 percent from this year’s high on April 23 on concern a sovereign-debt crisis in Europe, a slow-to-recover U.S. job market and China’s moves to tame inflation will dent global growth. The gauge is 7.9 percent lower this year and has fallen for eight of the past nine days, trimming its valuation to less than 15 times the reported earnings of its companies, the cheapest level in about a year, according to Bloomberg data.
Index futures slid before the open of U.S. exchanges after the Labor Department said initial jobless claims increased by 13,000 to 472,000 last week, topping the median economist forecast for a decline to 455,000. Manufacturing grew in June at a slowest pace this year, with the Institute for Supply Management’s gauge dropping to 56.2 last month from 59.7 in May. The median forecast of economists surveyed was 59.
The number of contracts to purchase previously owned houses plunged in May by 30 percent, more than twice as much as forecast, after a homebuyer tax credit expired. The drop was the biggest in records dating to 2001.
China’s manufacturing growth slowed more than economists forecast in June, adding to signs that the world’s fastest-growing major economy is cooling. The government’s Purchasing Managers’ Index fell to 52.1 in June from 53.9 in May. The median forecast in a Bloomberg News survey of 12 economists was 53.2.
Stocks pared declines in the afternoon amid speculation that the recent slide in equities may have overshot the potential slowdown in the economic recovery.
“The level of pessimism we’ve seen over the last several days can be viewed as somewhat extreme given valuations,” said Timothy Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, New York, which manages $2 billion. “We’re still in an economic recovery and all signs point to a continuation of that, perhaps at a slightly slower pace.”
At its low for the day, the S&P 500 was trading with a PEG ratio, or its price-earnings multiple using 2009 profit divided by forecast 2012 income growth, of 0.78, according to data compiled by Bloomberg. The indicator was a favored tool of Fidelity Investments fund manager Peter Lynch, who claimed stocks trading with a PEG as high as 1 were fairly valued.
‘A Good Deal’
“When you look at an individual stock at a PEG of 1 you’re generally getting a good deal,” said Paul Hickey, founder of Harrison, New York-based Bespoke Investment Group LLC. “So if you’re getting it at 0.78 you’re buying the market at 20 percent cheaper than its growth rate and so that’s a pretty compelling valuation.”
The Russell 2000 Index of smaller stocks fell 0.8 percent after earlier losing as much as 3.1 percent. That intraday decline took the gauge into bear-market territory, having retreated more than 20 percent from its high on April 23.
“Small-cap valuations looked stretched, especially with the hints of a weaker recovery,” said Eric Cinnamond, the Jacksonville Beach, Florida-based manager of the $450 million Intrepid Small Cap Fund which has beaten 83 percent of peers so far this year. “There are no tailwinds for these stocks and they’re not seeing the revenue growth that had been priced in earlier.”
JPMorgan Chase & Co. fell 1.3 percent to $36.08. The second-largest U.S. bank had its second-quarter earnings-per-share estimate reduced by Bank of America Corp. analysts, who said uncertainty over Europe and China and risk aversion hurt trading and investment banking.
An index of health-care companies in the S&P 500 fell the second-most of 10 groups. WellPoint Inc., the biggest U.S. health insurer, expects to lose about $100 million on the individual insurance market in California after requesting a scaled-back rate increase, a company spokeswoman said today.
WellPoint declined 2.3 percent to $47.79. UnitedHealth retreated 1.9 percent to $27.85, and Humana fell 2.4 percent to $44.59.
Merck lost 1.5 percent to $34.44 after Lupin Pharmaceuticals Inc. said it received approval from the U.S. Food and Drug Administration for its generic version of Merck’s antacid Pepcid.
Dendreon Corp. tumbled 6.8 percent to $30.13. The Centers for Medicare and Medicaid Services is requesting public comments on the effects of Dendreon’s Provenge on prostate-cancer patients.
“We believe the worst case scenario contemplated here --an official CMS ruling not to reimburse for Provenge -- is simply not supported by the facts,” Robert Baird analyst Raymond Christopher wrote in a note to clients today. The broker has an “outperform” recommendation on the shares.
UPS climbed 2 percent to $58 and FedEx Corp. increased 2.7 percent to $72 after both were raised to “buy” from “neutral” at UBS AG, citing compelling valuations and expectations for above-average earnings-per-share growth.
BP Plc’s U.S. shares rallied 1.8 percent to $29.39 and have gained 8.8 percent this week, paring their retreat since April 20 to 51 percent. The company said it’s sticking to its schedule for the relief wells needed to plug the leaking well in the Gulf of Mexico to be completed in August. Work continues to contain the spill, Sheila Williams, a London-based spokeswoman for BP, said by phone.
‘Ahead of Schedule’
“They are ahead of schedule,” said Fadel Gheit, an oil analyst at Oppenheimer & Co in New York. “They are coming to the finish line, but once they come to it they will crawl, they will not run or walk. They do not want to leave any chance of failure.”
Yahoo! Inc. gained 1.8 percent to $14.09 after the internet media company’s board authorized the repurchase of as much as $3 billion of the company’s shares over the next three years.
Smith & Wesson Holding Corp. climbed 6.9 percent to $4.37. The handgun manufacturer reported fourth-quarter adjusted earnings of 8 cents a share, beating analysts’ estimates of 4 cents a share.
Arena Pharmaceuticals Inc. soared 16 percent to $3.56 after Eisai Co. said it will sell the hunger-curbing lorcaserin drug from Arena in the U.S. if the obesity treatment is approved.
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