U.S. stocks fell, snapping a three-day rally, after jobless claims unexpectedly increased and selling in German futures sparked a rout in global equities.
Financial shares in the Standard & Poor’s 500 Index erased a gain of as much as 4.8 percent. Bank of America Corp., the biggest U.S. lender, surged 9.4 percent after saying Warren Buffett’s Berkshire Hathaway Inc. will invest $5 billion to bolster the company. Apple Inc. decreased 0.7 percent after Steve Jobs resigned as chief executive officer.
The S&P 500 fell 1.6 percent to 1,159.27 at 4 p.m. in New York. The benchmark gauge rallied 4.8 percent during the previous three days. The Dow Jones Industrial Average declined 170.89 points, or 1.5 percent, to 11,149.82 today.
“We’re not out of the woods and the market is reflecting that,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, said in a telephone interview. His firm oversees $550 billion. “The European situation is still a mess. Sometimes these markets get hit because they are the most liquid. If you want to dump risk quickly in Europe, shorting Germany is probably the best way to do it. The market bounced over the last few days because we were so oversold, but the economic fundamentals did not change.”
When U.S. exchanges opened, the S&P 500 advanced as much as 1.1 percent after Berkshire Hathaway agreed to buy Bank of America cumulative perpetual preferred stock that pays an annual dividend of 6 percent. At the same time, Nasdaq-100 Index futures erased losses that had been driven by Jobs’s resignation as Apple’s chief executive officer.
Declines in stocks intensified at about 9:45 a.m. New York time, as Germany’s DAX Index dropped 4 percent in 15 minutes. A report at 8:30 a.m. showed an unexpected increase in American jobless claims.
Traders sold German equity futures to hedge their investments before France, Italy and Spain extended curbs on short selling. The selling of DAX futures lifted volume to a quarter of the daily average within a 30-minute period. That dragged down the index, pulling equities in the U.S. and throughout Europe lower, and drove Treasuries and the dollar higher. After European markets closed, French, Italian and Spanish stock-market regulators announced the extension of the short-selling bans introduced this month.
Nobel-prize winning economist Joseph Stiglitz said the chances of the U.S. economy going back into recession are “very high,” speaking at a conference today in Lindau, Germany. The city of Harrisburg, Pennsylvania, said it may miss a $3.3 million bond payment on Sept. 15.
“It’s such a mishmash,” Hank Smith, chief investment officer at Haverford Trust Co. in Radnor, Pennsylvania, said in a telephone interview. His firm manages about $6.5 billion. “You have Buffett investing in Bank of America, which is a bet on the U.S. economy. Still, the employment picture is not a good one,” he said. “Then, there’s the European debt crisis. If global growth slows, that could be more of an issue.”
Investors are awaiting a speech by Federal Reserve Chairman Ben S. Bernanke in Jackson Hole, Wyoming, tomorrow for any indications of whether the central bank will embark on further stimulus.
“The markets have been very sensitive to every piece of economic data,” Keith Wirtz, the Cincinnati-based chief investment officer at Fifth Third Asset Management, which oversees $16.7 billion, said in a telephone interview. “You still got an indication that we have a poor labor market. It seems that the recent stock performance has been supported by expectations of QE3. If there’s no indication tomorrow, this market may retrace.”
Stock futures reversed gains as jobless claims climbed by 5,000 to 417,000 in the week ended Aug. 20, Labor Department figures showed today in Washington. Economists surveyed by Bloomberg News projected a drop in claims to 405,000, according to the median forecast. Claims were pushed up for a second time by a labor dispute at Verizon Communications Inc.
Data tomorrow may indicate the world’s biggest economy grew 1.1 percent in the second quarter, down from a previous estimate of 1.3 percent, according to the median of 80 forecasts in a separate survey.
Bank of America rose 9.4 percent to $7.65, while financial stocks in the S&P 500 lost 0.5 percent. Apple fell 0.7 percent to $373.72, after dropping as much as 3 percent earlier.