BLBG: S&P 500 Poised to Snap Two-Week Gain on Employment Report
U.S. stocks declined for a third straight day, indicating the Standard & Poor’s 500 Index will halt a two-week advance, after a government report showed employers added fewer jobs than forecast in April.
Nine out of 10 groups in the S&P 500 fell as commodity, technology and financial shares had the biggest losses. Cisco Systems Inc. (CSCO) and Bank of America Corp. dropped at least 2.3 percent to pace declines among the largest companies. LinkedIn (LNKD) Corp., the biggest professional-networking website, surged 7.2 percent as sales and profit exceeded analysts’ projections.
The S&P 500 decreased 1.2 percent to 1,375.25 at 10:35 a.m. New York time. The benchmark gauge has fallen 2.1 percent this week. The Dow Jones Industrial Average retreated 135.81 points, or 1 percent, to 13,070.78. Trading in S&P 500 companies was 4.2 percent above the 30-day average at this time of day.
“The data point to sluggish job growth, declining labor market participation and for those employed, stagnant purchasing power,” Mohamed El-Erian, the chief executive officer of Pacific Investment Management Co., said in an e-mail today. “Consumption is less dynamic at a time when headwinds from Europe and a potential fiscal cliff are still material.”
Equities fell as payrolls climbed 115,000, the smallest gain in six months. The median estimate of 85 economists surveyed by Bloomberg News called for a 160,000 advance. The jobless rate fell to a three-year low of 8.1 percent. Concern about Europe’s debt crisis also helped send stocks slower as services and manufacturing output in the euro region shrank.
More Stimulus
Some investors said the jobs report added to speculation the Federal Reserve will consider additional steps to boost the economy. The Fed may announce a third-round of asset purchases, known as quantitative easing, if economic data continues to disappoint, said Keith Wirtz, at Fifth Third Asset Management.
A measure of forecasting accuracy shows economic data have been worse than predicted. The Citigroup Economic Surprise Index was at minus 23.40. The index a year ago plunged into negative figures ahead of a soft patch in the economy that prompted the Fed, in an initiative dubbed “Operation Twist,” to replace $400 billion of short-term debt in its portfolio with longer-dated securities.
“The labor report may likely be the first beat on the drum for QE3,” Wirtz, who oversees $15 billion as chief investment officer for Fifth Third Asset Management in Cincinnati. “As we proceed into summer, watch the releases. Negative beats will lead to Fed actions before Labor Day --ironic by accident.”
Earnings Season
A 2.2 percent decline in the S&P 500 in three days has trimmed the benchmark gauge’s rally this year to 9.4 percent. Since reaching a 12-year low in March 2009, the S&P 500 has more than doubled amid government’s measures to stimulate the economy and better-than-estimated corporate earnings. About 71 percent of S&P 500 companies that reported results since the start of the earnings season have beaten projections, according to data compiled by Bloomberg.
Twenty nine out of the 30 companies in the Dow average retreated today. The Morgan Stanley Cyclical Index of companies most-dependent on economic growth lost 1.4 percent. The KBW Bank Index is slumped 1.6 percent as all of its 24 stocks declined. Bank of America dropped 3.4 percent to $7.73. Cisco Systems slipped 2.3 percent to $19.26. Alcoa Inc. (AA) sank 1.6 percent to $9.43.
LinkedIn surged 7.2 percent to $117.26. The company, whose shares have more than doubled since its initial public offering in May 2011, said membership increased to 161 million from 150 million in the fourth quarter.
Federal Reserve policy isn’t designed to prop up U.S. stock prices as many people believe, according to David Einhorn, president of Greenlight Capital LLC.
‘Fed Put’
“The real Fed put is under the bond market,” the hedge- fund manager wrote in a commentary yesterday on the Huffington Post website. He was referring to a put option, which sets an asset’s minimum price for a later sale.
Stocks and bonds have often moved in opposite directions during the past three months. The S&P 500 and a Treasury note and bond index, compiled by Bloomberg and the European Federation of Financial Analysts Societies, were used in the comparison.
“The Fed has all but guaranteed that it will do what it takes to stop bond prices from falling” by promising to keep its target interest rate near zero through 2014, according to Einhorn, based in New York.
The Bloomberg/EFFAS index was 0.2 percent higher for the year through yesterday after rebounding from losses in February and March. Those declines followed gains in January that lifted the indicator to a record.
Central bankers don’t understand investor psychology, Einhorn wrote. “If you want to get people to sell bonds and buy stocks, the best way to do that is to show them that bond prices can, and do, fall.”
To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
