Stocks sank, trimming the Standard & Poor’s 500 Index’s biggest two-week gain since 2009, as oil slid and Treasuries jumped as slower-than-estimated job growth spurred concern about the economy. The euro fell and Italian bonds dropped amid speculation Europe’s debt crisis will worsen.
The S&P 500 retreated 0.7 percent to 1,343.80 at 4 p.m. in New York, paring the two-week rally to 5.9 percent. Oil tumbled 2.5 percent to $96.20 a barrel. The S&P GSCI Index of commodities fell 0.8 percent even as gold extended its biggest weekly advance since 2009 amid demand for havens. Five-year Treasury yields decreased as much as 18 basis points to 1.54 percent, the biggest intraday drop in 14 months. The euro depreciated 0.7 percent to $1.4259.
The S&P 500 retreated after rising to within 0.8 percent of a three-year high, driven lower by U.S. payrolls growing 83 percent less than economists predicted and the American unemployment rate rising to a 2011 high of 9.2 percent. The report damped optimism about prospects for profit growth before Alcoa Inc. starts earnings season on July 11.
“It means that we’re still a ways off from getting to where we should be,” Warren Buffett, the billionaire chairman and chief executive officer of Omaha, Nebraska-based Berkshire Hathaway Inc., said in an interview with Bloomberg Television’s Betty Liu on the “In the Loop” program. “How fast the recovery will come, I don’t know. I see nothing that indicates any kind of a double dip,” or relapse into a recession. “I would bet very heavily against that,” he said.
Financial and industrial companies led losses among 10 S&P 500 groups, dropping at least 1.2 percent. Bank of America Corp. and General Electric Co. fell more than 1.6 percent to lead losses in the Dow Jones Industrial Average. Google Inc. lost 2.7 percent as Morgan Stanley cut the shares to “equal weight,” saying the search engine’s spending on social media and other initiatives have an uncertain return on investment.
Losses in companies reliant on economic growth today represented a reversal from the past three weeks. The Morgan Stanley Cyclical Index tracking manufacturers, commodity producers and transportation stocks rose 10 percent between June 16 and yesterday, beating the Morgan Stanley Consumer Index of drugmakers and grocers by 6.6 percentage points. Amid concern the debt crisis in European nations including Greece would slow global growth, the consumer index outperformed the cyclical index by 9.7 points between Feb. 17 and June 16.
Alcoa, the largest U.S. aluminum producer, will start the second-quarter earnings season on July 11. Profits at S&P 500 companies are projected to have gained 13 percent in the second quarter, according to analyst estimates compiled by Bloomberg. Growth at that rate would mark the smallest increase in two years, as companies from Ford Motor Co. to McDonald’s Corp. struggled with rising oil and commodity prices and a slowdown in consumer confidence.
Energy and raw-material producers are forecast to post earnings growth in excess of 40 percent, leading the increase among 10 industries. Industrial and technology company earnings are projected to have the next-highest growth at 13 percent each, estimates compiled by Bloomberg show.
The absence of stronger job growth has spurred concern consumer spending, which accounts for 70 percent of the economy, may slow and threaten the outlook for profits. The second-quarter slowdown in hiring underscores a recovery that Federal Reserve Chairman Ben S. Bernanke said is “frustratingly slow.”
“The report is exceedingly disappointing,” said Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion. “It fell short of just about everyone’s expectations and it certainly has to disappoint equity investors. It wasn’t just a miss, it was a complete whiff.”
The data revived speculation that the Federal Reserve will plan more stimulus efforts to bolster growth after its second round of so-called quantitative easing, known as QE2 among investors, ended in June.
“This raises the prospect of QE3 in the U.S. by November and perhaps even earlier than that in the U.K.,” said David Blanchflower, an economics professor at Dartmouth College, in a Bloomberg TV interview. “That’s what we’re going to see. How else are you going to stimulate?”
Treasuries extended a weekly rally driven earlier by concern that Europe’s government debt crisis will worsen. Ten-year Treasury yields sank 12 basis points to 3.02 percent, while 30-year yields lost eight basis points to 4.29 percent.
Dollar, Swiss Franc
The Dollar Index, a gauge of the currency against six major peers, rose 0.2 percent to 75.12. The yen strengthened against 15 of 16 major peers and the Swiss franc appreciated versus all 16 amid increased demand for currencies considered to be a refuge in a weakening economy.
Oil, cocoa and zinc lost more than 2.3 percent to lead declines in the S&P GSCI Index. Gold futures for August delivery rose 0.7 percent to $1,541.60 in New York. This week, the price gained 4 percent.
Bank stocks led declines in Europe, with Italy’s UniCredit SpA, Intesa Sanpaolo SpA and Banco Popolare SC dropping more than 4.5 percent. The Stoxx 600 Banks Index slipped 2.3 percent for the biggest decline among 19 industries, extending losses after the U.S. jobs data.
European Central Bank President Jean-Claude Trichet said yesterday governments may put financial stability at risk if they ignore his advice to avert even a partial default of Greece.
EU Stress Tests
Banks that fail this year’s round of European Union stress tests may need to present plans for making up their capital shortfall by the end of September, according to an internal EU document.
Responding to the market turbulence, Bank of Italy Governor Mario Draghi said he’s certain the country’s lenders will pass European stress tests by a “significant” margin. The austerity measures approved by the government led by Prime Minister Silvio Berlusconi make balancing the country’s budget in 2014 a “realistic” goal, he said in a statement.
Italian bonds dropped for the fifth day and the extra yield investors demand to hold the securities instead of benchmark German bunds rose to 2.44 percentage points, the highest since before the euro was introduced in 1999. Greek 10-year yields advanced 17 basis points to 16.86 percent, with similar-maturity Irish and Spanish yields also climbing.
The Markit iTraxx SovX gauge for governments in western Europe climbed 13.8 basis points to 260. Credit-default swaps on Italy increased 29 basis points to 246.56, the highest since January, and Portugal’s rose 28.8 basis points to a record 1,017.1.