S&P 500 Has Longest Slump Since May on Economic Concern

U.S. Stocks Decline Amid Concern Over Global Economy
Traders work on the floor of the New York Stock Exchange. Photographer: Jin Lee/Bloomberg

U.S. stocks retreated, sending the Standard & Poor’s 500 Index to the longest slump since May, as concern intensified about a slowdown in the global economic recovery and American corporate earnings.

Equities pared earlier losses as Procter & Gamble Co. and Merck & Co. rallied more than 3.7 percent, while an S&P index of homebuilders jumped 2.4 percent. Bank of America Corp. and Morgan Stanley slipped at least 1.9 percent, pacing declines among banks. Supervalu Inc. sank 49 percent after the third-largest U.S. grocery chain said it will review strategic alternatives for the business and suspended its dividend.

The S&P 500 slid 0.5 percent to 1,334.76 at 4 p.m. New York time, paring a drop of as much as 1.2 percent. The benchmark index for American equities retreated for a sixth straight day, losing 2.9 percent over the period. The Dow Jones Industrial Average fell 31.26 points, or 0.3 percent, to 12,573.27, after losing more than 112 points. Volume for exchange-listed stocks in the U.S. was 6.5 billion shares, 3.3 percent below the three-month average.

“There’s a worldwide slowdown,” Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, said in a phone interview. The firm oversees $40 billion. “Wall Street analysts have been reducing their second-quarter earnings estimates as companies have guided them lower. Profit growth, which has been a main driver for the market, will be less supportive going forward.”

Fed Minutes

The S&P 500 closed little changed yesterday as investors sifted through minutes of last month’s Federal Reserve meeting for hints of additional stimulus. The Federal Open Market Committee’s June 19-20 meeting debated the need for further stimulus measures, the minutes showed. Two participants supported additional bond purchases, while two others said only a further deterioration in the economy would warrant them.

Equities remained lower earlier today as Labor Department figures showed applications for first-time claims declined last week more than economist forecast. The decrease reflected the volatility of claims during the annual auto-plant retooling period. In Asia, the Bank of Korea unexpectedly cut its key interest rate. Data due out tonight may show China’s economic growth fell below 8 percent for the first time since 2009, according to the median estimate in a Bloomberg News survey.

50-Day Average

The S&P 500 pared losses in the afternoon, rebounding after dipping below its 50-day moving average for a third day.

“Technicals may be a contributing factor,” Ryan Larson, Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., wrote in an e-mail. His firm oversees $250 billion in assets. “It does appear that the market is somewhat backstopped from any meaningful losses on hopes of further central bank intervention, specifically from the Fed.”

Bank of America strategists lowered their earnings forecasts for S&P 500 companies by 1.4 percent for this year and next year, citing falling commodity prices and slower global growth prospects. Strategists Dan Suzuki, Savita Subramanian and Jill Carey now project earnings of $102 per share for 2012 and $109 for 2013, according to a note to clients today.

Analysts surveyed by Bloomberg project that earnings decreased 1.8 percent in the second quarter, the first drop in almost three years.

Warren Buffett

Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., told CNBC that economic growth in the U.S. is slowing even as the housing market shows signs of rebounding.

“The general economy in the United States has been more or less flat, and so the growth has tempered down,” he said today in an interview with the television station from Sun Valley, Idaho. Buffett’s remarks contrast with his comment a year ago to Bloomberg Television’s Betty Liu in Sun Valley that the economy and jobs will “come back big time” when residential construction recovers. U.S. unemployment has exceeded 8 percent for more than three years.

An S&P index of homebuilders rose 2.4 percent. Lennar Corp. jumped 3.6 percent to $31.06. PulteGroup Inc. gained 2.9 percent to $10.84, while D.R. Horton Inc. added 2.7 percent to $18.37.

Equities also pared declines as P&G rallied 3.8 percent to $63.70. The Federal Trade Commission cleared William Ackman’s Pershing Square Capital Management LP to buy a stake in the world’s largest consumer-products company. Ackman said the stake is the firm’s “largest initial investment ever.” His interest may signal more pressure for asset sales from P&G, which sold its Pringles snacks unit to Kellogg Co. for about $2.7 billion earlier this year, according to Louis Meyer, a special-situations analyst at Oscar Gruss & Son Inc.

Merck, McDonald’s

Merck rose 4.1 percent, the most in the Dow, to $42.91. An advisory panel recommended closing the Phase 3 clinical trial of an experimental therapy to prevent bone fractures in women with osteoporosis early “due to robust efficacy and a favorable benefit-risk profile,” Merck said.

McDonald’s Corp. advanced 2.7 percent to $91.93. Sales at the world’s largest restaurant chain probably “meaningfully” beat even the highest analyst estimate, Mark Kalinowski, an analyst with Janney Montgomery Scott LLC said, citing checks with franchisees.

Seven out of 10 groups in the S&P 500 retreated, as technology and financial companies lost more than 1 percent. The Morgan Stanley Cyclical Index of companies most-tied to the economy erased 0.9 percent.

JPMorgan Earnings

Financial stocks dropped as European lenders fell. Bank of America lost 2 percent to $7.48. Morgan Stanley retreated 1.9 percent to $13.55.

JPMorgan Chase & Co. slid 1.6 percent to $34.04. Investors will look for Chief Executive Officer Jamie Dimon to restore confidence when the company reports second-quarter results tomorrow. The bank may say profit fell 40 percent to 76 cents a share, excluding accounting adjustments, according to the average estimate from analysts in a Bloomberg survey. JPMorgan shares have dropped 16 percent since May 10, when the company disclosed a $2 billion loss on credit derivatives.

Lexmark International Inc. slumped 7.5 percent to $24.31, leading losses among technology shares. Benjamin Reitzes, an analyst with Barclays Plc, cut the maker of laser and inkjet printers to underweight, an equivalent of sell, citing a slump in corporate spending as more workers use mobile devices. The stock was previously rated equalweight.

Supervalu Sinks

Supervalu tumbled 49 percent to $2.69. The company, which last month announced layoffs in its Albertsons unit in California and Nevada, plans to accelerate price reductions and cut costs by an additional $250 million over the next two years, it said in a statement yesterday. It has retained Goldman Sachs Group Inc. and Greenhill & Co. to review its options, it said.

Safeway Inc., the second-largest U.S. grocer, slumped 13 percent, the most in the S&P 500, to $15.73. Kroger Co., the biggest, sank 3.7 percent to $21.96.

Marriott International Inc. slid 6.4 percent to $35.58 as the hotel operator reduced its projections for revenue growth per available room outside North America. Starwood Hotels & Resorts Worldwide Inc., owner of the luxury St. Regis and W brands, retreated 5.3 percent to $48.66.

Airlines fell as Goldman Sachs Group Inc. said analysts’ estimates for the industry are “too optimistic.” Tom Kim, an analyst with Goldman Sachs, rated Delta Air Lines Inc. and United Continental Holdings Inc. sell in new coverage, saying the two companies are most vulnerable to earnings pressure.

Delta Air fell 3.1 percent to $10.75 while United Continental slipped 4.1 percent to $23.78.

Sears Holdings Corp., controlled by hedge-fund executive Edward Lampert, declined 5.1 percent to $53.48. The retailer’s same-store sales probably dropped 5 percent for the second quarter, accelerating from a 1 percent decrease in the previous three months, Cleveland Research said, citing channel checks.

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