Dow Falls 6th Day in Longest Slump Since August on Greece
The Dow Jones Industrial Average (INDU) declined for a sixth straight day, the longest losing streak since August, amid concern Greece’s debt crisis is worsening as the nation struggles to form a coalition government.
Equities trimmed losses as Europe’s bailout fund said it will pay the next installment of aid to Greece. General Electric Co. (GE) and JPMorgan Chase & Co. (JPM) slid more than 1.7 percent to pace declines among the largest companies. Macy’s Inc. (M), the owner of its namesake department stores, slumped 3.7 percent as its profit forecast for this year trailed projections. Walt Disney Co. advanced 1.6 percent, to an all-time high, after the world’s largest entertainment company said earnings surged 21 percent.
The Standard & Poor’s 500 Index fell 0.7 percent to 1,354.58 at 4 p.m. New York time, a two-month low. The Dow slid 97.03 points, or 0.8 percent, to 12,835.06. It had the longest slump since Aug. 2, three days before S&P stripped the U.S. of its AAA credit rating. About 7.8 billion shares changed hands on U.S. exchanges, or 18 percent above the three-month average.
“It’s a tense situation in Greece,” John Carey, who helps oversee about $220 billion at Pioneer Investments in Boston, said in a telephone interview. “The elections in Europe opened up the possibility of a new look at bailout packages. That’s tough to analyze and uncertainty as always troubles investors.”
Global stocks fell as Greece’s political turmoil looks set to enter a fourth day with coalition talks deadlocked. The standoff has reignited concerns over its ability to hold to the terms of its two bailouts negotiated since May 2010. With Parliament split and policy makers in Berlin and Brussels urging Greece to stay the course, the country at the epicenter of the debt crisis is again facing the risk of an exit from the euro.
5.2 Billion Euros
Equities pared declines as the European Financial Stability Facility’s Board of Directors confirmed the release of 5.2 billion euros ($6.7 billion) from a first installment of 39.4 billion euros by the end of June.
Some investors also said the market trimmed losses as the S&P 500 traded near 1,350 (SPX), a support level for traders. Peter Jankovskis, at Oakbrook Investments, said that equities could resume their rally with positive developments in Europe. The index has risen 7.7 percent in 2012 amid better-than-estimated corporate profits. About 70 percent of S&P 500 companies that reported results since the start of the earnings season have topped projections, according to data compiled by Bloomberg.
“Corporate earnings have continued to be good,” Jankovskis, who helps manage $2.9 billion, said in a telephone interview from Lisle, Illinois. “There’s reason to be encouraged about American stocks.”
Concern about Europe’s debt crisis helped drive the S&P 500 down 3.1 percent in May. All 10 groups in the benchmark gauge retreated today. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, surged 5.4 percent to 20.08, the highest level since April 10.
The Dow Jones Transportation Average, a proxy for the economy, lost 1.4 percent. FedEx Corp. (FDX), the operator of the world’s biggest cargo airline, slid 2.1 percent to $87.13. GE decreased 1.8 percent to $18.91. The KBW Bank Index (BKX) dropped 1.6 percent. JPMorgan sank 1.8 percent to $40.64.
Moody’s Investors Service will this month start cutting the credit ratings of more than 100 banks, a move that risks pushing up their funding costs and forcing them to curb lending in a threat to economic growth.
BNP Paribas SA, France’s biggest lender, Deutsche Bank AG, Germany’s largest, and New York-based Morgan Stanley are among firms that face having their short- and long-term debt downgraded to their lowest-ever levels by Moody’s, the ratings company said in February.
Macy’s declined 3.7 percent to $38.05. The company repeated its forecast that profit this year would be $3.25 to $3.30 a share. Analysts estimated $3.39, on average.
Carlyle Group LP sank 1.1 percent to $21.75, slumping below the $22 offering price in its fifth day of trading, following a discounted IPO with which the firm sought to prove that shares in private-equity managers can rise.
Disney rose 1.6 percent, the most in the Dow, to $45.02. The record weekend opening of “Marvel’s The Avengers,” while not a factor in the second quarter ended March 31, was a focus of yesterday’s conference call with analysts. Disney is working on a sequel, racing to get more “Avengers” merchandise in stores and plotting to get the characters in its parks.
A measure of homebuilders in S&P indexes rallied 2.6 percent. Prices for single-family homes climbed in half of U.S. cities in the first quarter as real estate markets stabilized.
MetroPCS Communications Inc. surged 14 percent, the biggest gain in the S&P 500, to $7.50. Deutsche Telekom AG is discussing a merger of its T-Mobile USA unit with MetroPCS as it reviews options for the customer-losing business, according to people familiar with the matter.
Avon Products Inc. (AVP) gained 9.3 percent to $21.60 after JAB Holdings B.V. announced plans to sell 36 million shares of Reckitt Benckiser Group Plc to fund investments, including its proposed acquisition of Avon.
Dean Foods Co. (DF) rose 11 percent to $14.15. The biggest U.S. dairy processor boosted its full-year forecast, saying it now expects to earn at least $1.10 a share. Analysts, on average, estimated 95 cents.
U.S. stocks are less than expensive regardless of the price-earnings ratio used to value them, said Richard Bernstein, chief executive officer of Richard Bernstein Advisors LLC.
A comparison of the S&P 500’s multiple to earnings from the previous four quarters along with a ratio, compiled by Yale University Professor Robert J. Shiller, that’s based on 10 years of income, put the index’s value at respectively 13.8 times and 22.2 times profit.
“The market looks at worst reasonably valued, at best downright cheap,” Bernstein said in an interview with Robert Huebscher, founder and CEO of the Advisor Perspectives website, that was published yesterday.
Both price-earnings indicators look “better than normal” after taking interest rates into account, he said. The average yield on 10-year Treasury notes has fallen to 2.01 percent this year from 2.76 percent for all of last year, according to data compiled by Bloomberg.
“People are underestimating the risk outside the U.S. and overestimating the risk inside it,” said Bernstein, based in New York. “Over the next several years, there is going to be a reevaluation of those risks, and we should get higher multiples in the U.S.”
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