U.S. stocks sank, pushing the Standard & Poor’s 500 Index to its biggest weekly loss in a year, as weaker-than-forecast gross domestic product added to concern the economic rebound is in jeopardy as the government inches closer to default.
Caterpillar Inc. (CAT) and DuPont Co. lost more than 1.4 percent each. Merck & Co. dropped 2.1 percent as the drugmaker said it plans to slash its workforce by an additional 12 to 13 percent by 2015. Newmont Mining Corp. (NEM) fell 2.4 percent after reporting second-quarter profit that trailed analysts’ estimates as mining costs increased. Starbucks Corp. (SBUX) rose 0.2 percent after reporting third-quarter earnings that exceeded analysts’ forecasts as customer traffic increased in the U.S.
The S&P 500 tumbled 0.8 percent to 1,290.96 at 10:28 a.m. in New York. The benchmark for U.S. equities is headed for its third straight month of losses, the longest slump since 2008. The Dow Jones Industrial Average sank 104.55 points, or 0.9 percent, to 12,135.56.
“It’s coming from all sides today,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in telephone interview. “The economy is not moving along at a robust pace, the consumer is not spending and overshadowing all of this is the uncertainty in Washington,” he said. “We need more confidence for people to buy risky assets such as stocks.”
The S&P 500 has tumbled 4 percent this week as concern mounted that lawmakers will fail to agree to increase the U.S. debt ceiling by the Treasury Department’s Aug. 2 deadline. House Speaker John Boehner fell short of the votes within his own party needed to increase the U.S. debt limit after a night of one-on-one appeals to members yesterday. President Barack Obama had threatened to veto the House’s plan.
GDP Growth
Equities extended losses today as the Commerce Department reported GDP rose at a 1.3 percent annual rate in the second quarter following a 0.4 percent gain in the prior quarter that was less than previously estimated. The median forecast of economists surveyed by Bloomberg News called for a 1.8 percent increase. Household purchases, about 70 percent of the economy, climbed 0.1 percent.
In a separate report, the Institute for Supply Management- Chicago Inc. said today its business barometer fell to 58.8 in July, lower than forecast, from 61.1 the prior month. Figures greater than 50 signal expansion.
The faltering economy will probably complicate the debt- ceiling negotiations in Congress and is one reason why Federal Reserve Chairman Ben S. Bernanke has said policy makers need to keep all options open.
Debt Debate
The S&P 500 has declined 5.3 percent from an almost three- year high in April amid speculation that the sovereign debt crisis in Europe is spreading and concern that U.S. lawmakers will fail to reach a deal on raising the nation’s debt limit before the Aug. 2 deadline.
Quarterly reports from corporations helped boost U.S. stocks before the start of this week, when investors’ attention shifted to the debt impasse in Washington. Of the 299 S&P 500 companies that have reported earnings since July 11, 78 percent have beaten the average analyst estimate for per-share earnings.
Motorola Mobility Holdings Inc., the handset maker spun off in January from parent Motorola Inc., slumped 0.4 percent to $22.81. It forecast profit for the third quarter and full year that missed analysts’ estimates amid growing competition from rival smartphone makers.
Newmont Mining fell 2.4 percent to $56.36. The largest U.S. gold producer reported second-quarter profit that trailed analysts’ estimates as mining costs increased.
Starbucks, Yahoo
Merck dropped 2.1 percent to $34.19 for the biggest decline in the Dow. The second-largest U.S. drugmaker said it plans to slash its workforce by an additional 12 to 13 percent by 2015, expanding a restructuring program to save as much as $4.6 billion a year.
Columbia Sportswear slipped 6.6 percent to $57.47 as it reported a 40-cent-per-share loss for the second quarter.
Starbucks rose 0.2 percent to $40.07. The world’s largest coffee-shop operator reported third-quarter earnings that exceeded analysts’ estimates as customer traffic increased in the U.S. Profit was 36 cents a share, compared with the average estimate of analysts surveyed by Bloomberg of 34 cents.
Yahoo! Inc. sank 1.7 percent to $13.27, after rising as much as 4.2 percent. Alibaba Group Holding Ltd. reached an agreement with shareholders Yahoo and Softbank Corp. over the spinoff of its Alipay unit that will give Alibaba as much as $2 billion if the business sells shares to the public. Hong Kong- based Alibaba transferred Alipay, China’s most-popular online- payment service, to a Chinese company controlled by Alibaba Chairman Jack Ma in August 2010, a transaction that wasn’t ratified by Alibaba directors.
To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
