Fed Loses to Greece as U.S. Stocks Endure Worst Week Since March

U.S. stocks fell the most since March this week as the escalating crisis in Greece stole attention from the U.S. economy and Federal Reserve.

The Standard & Poor’s 500 Index ended the shortened week lower by 1.2 percent and suffered its biggest single-day decline of the year on Monday after Greece closed its banks and imposed capital controls. It marked the benchmark gauge’s first weekly swing, up or down, of more than 1 percent since April.

Things may have been different in the absence of the Greek crisis: data showed consumer confidence and manufacturing rose while odds of a September interest-rate increase by the Fed fell. And yet the Dow Jones Industrial Average slid more than 200 points on concern citizens of the Mediterranean nation will reject compromise with the European Union and worsen its financial crisis.

“There’s a looming uncertainty with regard to Greece, and that’s taking the spotlight,” said Joe Bell, a Cincinnati-based senior equity analyst at Schaeffer’s Investment Research Inc. “The backdrop of the entire week has been Greece. Perhaps once this is resolved or we get more clarity next week you’ll see the focus change.”

Greece’s stock market was closed all week as its euro-area financial-aid package expired and it missed a payment to the International Monetary Fund. A U.S.-listed exchange-traded fund tracking Greek equities fell 19 percent on Monday as traders speculated on where prices would end up.

Index Moves

The S&P 500’s loss pared its 2015 gain to 0.9 percent. The benchmark equity gauge decreased 0.2 percent in the second quarter, its first three-month decline since 2012. The Dow slid 1.2 percent for the week, while the Nasdaq Composite Index fell 1.4 percent in the four-day period. The market is closed on Friday for the July 4 holiday.

A survey showed 47 percent of Greeks were leaning toward a “yes” vote on the July 5 referendum, an endorsement of austerity and the international bailout. The “no” camp, the government’s position rejecting those terms, was 43 percent. The margin of error in the survey of 1,000 people was 3.1 percentage points.

The uncertainty overshadowed U.S. economic data that, while improving, wasn’t strong enough to boost prospects for an increase in Fed interest rates. Futures show a 29 percent probability central bank officials will raise rates at their September meeting, down from 35 percent Wednesday, according to data compiled by Bloomberg.

Economic Data

A Labor Department report Thursday showed the U.S. economy added 233,000 jobs in June while wages stagnated and the size of the labor force receded. Hiring fell short of economist estimates, according to Bloomberg data. The jobless rate fell to a seven-year low as people left the workforce.

“It’s a little bit of bad news is good news,” Joe “JJ” Kinahan, chief strategist at TD Ameritrade Holding Corp., said by phone. “It says we have a couple more months of free money.”

Other reports showed manufacturing expanded in June at the fastest pace in five months, indicating domestic demand is allowing America’s factories to withstand sluggish overseas economies. The Conference Board’s consumer confidence index advanced to a three-month high of 101.4, exceeding all projections in a Bloomberg survey.

Quarterly earnings season begins in the coming week with Alcoa Inc. scheduled to report on July 8. Analysts forecast corporate profits will contract 6.5 percent for the period before turning positive in the fourth quarter, according to Bloomberg data. Profits will end up growing 1.2 percent for the full 12 months, the data show.

Sector Moves

Nine of the S&P 500’s 10 main industry groups fell during the week, with energy and raw-materials shares both down at least 1.8 percent. Utility companies rallied 1.1 percent, the most in two weeks, amid a drop in Treasury yields. The sector’s dividend payout becomes more attractive to investors when yields decline.

Energy companies retreated 2 percent as crude oil had its worst week since March. Chesapeake Energy Corp., Consol Energy Inc. and Transocean Ltd. each lost more than 2.6 percent.

Peabody Energy Corp. plunged 18 percent, bringing its loss for the past 12 months to 89 percent. The largest U.S. coal producer dropped after saying second-quarter earnings will miss an earlier forecast because of bad weather and lower prices for the variety of the commodity used by steelmakers.

Raw-material companies in the S&P 500 slid 1.8 percent. Dow Chemical Co. dropped 2.5 percent, while DuPont lost 3.7 percent to close the week at its lowest level in 16 months.

Chubb Corp. surged 26 percent to a record after Ace Ltd. agreed to buy the insurer for $28.3 billion in cash and stock.

General Motors Co. and Ford Motor Co. each lost at least 3.3 percent after GM’s sales fell 3 percent in June and Ford’s light-vehicle sales rose less than analysts had projected.

A Bloomberg Index of U.S. airlines dropped 4.7 percent. The U.S. Justice Department has opened an antitrust investigation into some airlines for possible unlawful coordination, a spokeswoman said. American Airlines Group Inc., Southwest Airlines Co. and Delta Air Lines Inc. fell more than 5.2 percent.

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