U.S. Stocks Fall on Jobs Decrease

An unexpected drop in December U.S. nonfarm payrolls sparked concern that the economic recovery will falter

Jan. 8 (Bloomberg) -- U.S. stocks dropped, sending the Standard & Poor's 500 Index down from a 15-month high, after an unexpected decrease in jobs spurred concern the economic recovery will falter.

Boeing Co. (BA), Coca-Cola Co. (KO) and AT&T Inc. (T) declined at least 1% after the Labor Department said the nation lost 85,000 jobs in December, compared with the median economist forecast that called for no change. Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM) and Morgan Stanley (MS) slipped after Citigroup analysts reduced their fourth-quarter profit estimates, citing a "substantial decline" in trading.

The S&P 500 fell 0.1% to 1,140.91 at 12:30 p.m. in New York. The index had rallied 2.4% since Dec. 31, the best start to a year since 2006. The Dow Jones Industrial Average lost 22.15 points, or 0.2%, to 10,584.71.

"The market is anticipating a very strong recovery," said Tom Wirth, senior investment officer at Chemung Canal Trust Co., which manages about $1.7 billion in Elmira, New York. Today's report on jobs "would put into question whether the economy is going to grow over the next couple quarters."

The S&P 500 dropped for the first time in five days, trimming its weekly gain to 2.3%. Payrolls decreased last month after a revised November gain of 4,000, the Labor Department said. The jobless rate held at 10%.

Benchmark indexes trimmed losses after inventories at U.S. wholesalers unexpectedly jumped in November by the most in five years, a sign companies are picking up the pace of orders as sales climbed 3.3%, the biggest gain since January 2008.

Trading Slows

Goldman Sachs, the most profitable firm in Wall Street history, lost 1.2% to $175.56, while Morgan Stanley fell 1.9% to $32.30 and JPMorgan, the second-largest U.S. lender by assets, retreated 0.7% to $44.48. Citigroup analysts said trading in bonds, commodities and currencies slumped during the fourth quarter, hurting profit at U.S. banks.

Fixed-income, commodities and currencies trading in the fourth quarter declined substantially and "we are looking for industry fixed income trading to fall 15-20% in 2010," Citigroup analysts wrote in a report. "We expect 2011 revenues to also be under pressure due to the impact of regulatory reform."

Boeing, the second-biggest maker of commercial jetliners, fell 1.5% to $61.49, while Coca-Cola retreated 1.9% to $55.15 after JPMorgan cut its rating to "neutral" from "overweight." AT&T declined 1.3% to $26.94.

Analyst Downgrades

MetroPCS Communications Inc. (PCS) fell the most in the S&P 500 Index. The shares declined 6.8% to $7.01 after Soleil Securities downgraded the pay-as-you-go mobile-carrier to "sell" from "hold."

JPMorgan cut Colgate-Palmolive Co. (CL) to "neutral" from "overweight." The world's largest toothpaste-maker fell 2.4% to $81.02.

United Parcel Services Inc. (UPS), the world's largest package- delivery company, surged after saying fourth-quarter earnings exceeded its forecast and the average of analysts' expectations. UPS also announced plans to cut 1,800 jobs, underscoring its efforts to defend market share in the U.S., its largest division. The shares rose 4.8% to $60.18, the most intraday since July.

U.S. equities climbed for a fourth day yesterday, sending the S&P 500 to a 15-month high, on easing concern over commercial real-estate losses and gains in holiday retail sales.

Valuations Climb

The S&P 500 rallied 23% last year, including a rebound of 65% from a 12-year low in March, after governments around the world enacted stimulus measures and the Federal Reserve left its benchmark interest rate near zero to end the recession.

The biggest annual rally in six years left the index trading at almost 25 times its companies' reported earnings from continuing operations, the highest level since 2002, according to Bloomberg data.

The combined profit of companies in the S&P 500 is expected to increase in the fourth quarter from the year-earlier period for the first time since the second quarter of 2007, ending a record nine straight periods of declines. Alcoa Inc. is slated to release results Jan. 11, the first company in the Dow average to report. The company's shares climbed 0.8% to $16.74.

S&P 500 profits increased 60% in the fourth quarter, according to analyst projections compiled by Bloomberg. The index's price-to-earnings ratio falls to less than 15 when compared with estimated profit for 2010, according to Bloomberg data.

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net.

    Before it's here, it's on the Bloomberg Terminal.