U.S. stocks dropped, driving the Standard & Poor’s 500 Index to the biggest two-day slump in a month, on concern that a Greece referendum pledged by Prime Minister George Papandreou may threaten Europe’s bailout.
All 10 groups in the S&P 500 fell as gauges of financial, energy and industrial shares lost at least 3 percent. Citigroup Inc. and Morgan Stanley retreated more than 7.6 percent, following a 6.2 percent tumble in European lenders. Exchange operators slumped after U.S. lawmakers said they will propose a tax on financial transactions such as stock and bond trades.
The S&P 500 decreased 2.8 percent to 1,218.28 as of 4 p.m. New York time, extending its two-day retreat to 5.2 percent, the biggest drop since Oct. 3. The Dow Jones Industrial Average declined 297.05 points, or 2.5 percent, to 11,657.96 today.
“I just don’t get it,” Michael Mullaney, who helps manage $9.5 billion at Fiduciary Trust in Boston, said in a telephone interview. “A Greek referendum is a very risky proposition. Everybody thought last week that this crisis was behind us on a near-term basis, but Europe is going to be front and center.”
Today’s decline followed the best monthly gain for the S&P 500 since 1991. The drop cut the index’s price to 12.8 times reported earnings, 22 percent below its five-decade average of 16.4, according to data compiled by Bloomberg. The index trades close to the level where three rallies stopped in August and September, the top of a price range that prevailed for 10 weeks.
Greece’s referendum poses a threat to financial stability in the euro region and increases the risk of a “disorderly” default, Fitch Ratings said. Stocks extended losses as government spokesman Angelos Tolkas said Papandreou will proceed with plans for a referendum on the Greek financing package.
Group of 20
Papandreou’s announcement threatens to overshadow a Nov. 3-4 Group of 20 summit in Cannes, France. German Chancellor Angela Merkel and French President Nicolas Sarkozy held emergency talks on Greece today and called on Europe to implement the package of measures thrashed out in Brussels last week. The plan, designed to aid Greece and stem the wider debt crisis, is “more necessary than ever today,” they said in a joint statement issued in Berlin and Paris.
“It’s frustrating,” David Kelly, chief market strategist for JPMorgan Funds in New York, said in a telephone interview. “The danger of having a referendum is that it could be defeated, in which case Greece presumably would end up defaulting on its debt. Europe is not addressing the basic problem. They are not giving the peripheral countries a way out of a recession.”
American banks tumbled following losses in European lenders. The KBW Bank Index slumped 4.9 percent as all of its 24 stocks retreated. Citigroup dropped 7.7 percent to $29.17. Morgan Stanley lost 8 percent to $16.23.
MF Global Holdings Ltd., which the New York Stock Exchange is delisting following the brokerage’s bankruptcy filing, will begin trading tomorrow on the over-the-counter venue run by OTC Markets Inc. MF Global shares haven’t changed hands during a regular trading session since Oct. 28, before yesterday’s Chapter 11 filing.
Stocks also fell after data showed a Chinese manufacturing index dropped to the lowest level since February 2009. In the U.S., manufacturing grew less than forecast in October, depressed by a drop in inventories that may set U.S. factories up for stronger growth heading into 2012.
The Morgan Stanley Cyclical Index lost 3.2 percent amid concern about an economic slowdown. The Dow Jones Transportation Average slid 2.6 percent. General Electric Co. retreated 4.1 percent to $16.02. Exxon Mobil Corp. slumped 2.8 percent to $75.94.
Exchange Operators Sink
Exchange operators sank. Senator Tom Harkin, an Iowa Democrat, and Representative Peter DeFazio, an Oregon Democrat, said they will introduce bills tomorrow in their respective chambers to impose a transaction tax on financial firms. NYSE Euronext declined 6.8 percent to $24.76, while Nasdaq OMX Group Inc. fell 2.8 percent to $24.36. CME Group Inc. slumped 8.6 percent to $251.88.
MetroPCS Communications Inc. fell 9.9 percent, the most in the S&P 500, to $7.66. The pay-as-you-go U.S. wireless carrier reported third-quarter profit that missed analysts’ estimates as subscriber growth slowed for the second consecutive quarter.
Baker Hughes Inc. tumbled 7.7 percent to $53.54. The oilfield contractor reported third-quarter earnings excluding some items of $1.18 a share, missing the average analyst estimate by 3 percent, according to Bloomberg data.
Advanced Micro Devices Inc. sank 9.1 percent to $5.30. The Sunnyvale, California-based maker of chips for Apple Inc.’s computers failed to persuade a U.S. judge to halt a patent dispute S3 Graphics Co. has against Apple at the U.S. International Trade Commission, according to a filing with the trade agency.
Volatility indexes are rising again after plunging in October. The benchmark European gauge rose the most in two days since May 2010. The VStoxx Index, which measures the cost of Euro Stoxx 50 Index options, rose 22 percent to 42.96, extending its two-day increase to 37 percent. The Chicago Board Options Exchange Volatility Index, or VIX, soared 16 percent to 34.77, bringing its two-day gain to 42 percent.
“The market doesn’t like unknowns, and the situation in Greece today was a definite unknown,” Stephen Solaka, who oversees about $50 million including options as co-founder of Belmont Capital Group in Los Angeles, said in a telephone interview. “Bad news is OK, as long as it’s known. Unknown news or surprises cause issues, cause sell-offs and fears to appear. Fear is back on the table.”