BLBG: S&P 500 Declines to Lowest Level in Two Months on Greece
U.S. stocks fell, sending the Standard & Poor’s 500 Index to its lowest level in two months, as Greece’s struggle to form a new government intensified concern about a euro exit and deepening of the region’s debt crisis.
McDonald’s Corp. (MCD), the world’s largest restaurant chain, retreated 1.6 percent after April sales trailed analysts’ projections. Electronic Arts Inc. (EA), the second-largest U.S. video-game publisher, declined 7.4 percent after its forecasts fell short of estimates. Fossil Inc. (FOSL), owner of the namesake watch brand, plunged 37 percent after the company reduced its full-year earnings forecast amid weakness in Europe.
The S&P 500 retreated 1.3 percent to 1,352.07 at 10:46 a.m. New York time. The Dow Jones Industrial Average declined 161.21 points, or 1.2 percent, to 12,847.32. The 30-stock gauge slumped for a fifth straight day. Trading in S&P 500 companies was 4.8 percent above the 30-day average at this time of day.
“It’s the unknown in Europe affecting the market,” Hank Smith, chief investment officer at Haverford Trust Co. in Radnor, Pennsylvania, said in a telephone interview. His firm manages about $6.5 billion. “If Greece does exit the euro, will there be contagion? It could have a negative reverberation throughout the globe. Europe needs to start focusing on growth. That doesn’t mean growth of spending. They need austerity.”
American equities joined a global slump as Greek stocks declined to their lowest level in two decades. Greek political leaders meet for a second day to try to form a government after New Democracy’s Antonis Samaras failed to forge an agreement following an election that raised questions about the euro membership.
Overturn Bailout
The attempt to form a government now passes to Alexis Tsipras, the head of Syriza. Tsipras ran on a pledge to overturn Greece’s bailout, helping Syriza emerge as the country’s second- most voted party. He has said he will seek to form a coalition with other parties that favor reversing the 130 billion-euro bailout, the country’s second aid package, which came after Greece carried out the biggest debt restructuring in history.
Greece will probably leave the euro as soon as next month as the government runs out of cash and European institutions fail to lend more to the nation, according to John Taylor of hedge fund FX Concepts LLC.
“This summer I think is very likely,” Taylor, founder and chief executive officer of FX Concepts in New York, said today in an interview on Bloomberg Television’s “Inside Track” with Erik Schatzker. “The Europeans aren’t going to give them the money, the International Monetary Fund’s not going to give them an OK. They will be out of money in June.”
Monthly Decline
The S&P 500 (SPX) has lost 3.2 percent this month as concern about Europe’s debt crisis intensified and data on the U.S. labor market missed forecasts. The index rallied 29 percent from an October low to a four-year high on April 2 amid better-than- expected earnings.
McDonald’s lost 1.6 percent to $94.02. Sales at stores open at least 13 months rose 3.3 percent worldwide last month, trailing estimates, as sales growth slowed in the U.S. Analysts projected a gain of 4.3 percent, the average of 13 estimates compiled by Consensus Metrix. Sales in the U.S. advanced 3.3 percent. Analysts estimated an increase of 5.2 percent.
Electronic Arts dropped 7.4 percent to $14.01. The publisher of “FIFA” soccer and a “Star Wars” multiplayer online game is grappling with shrinking sales of packaged games and will incur a $40 million charge to cut jobs and terminate licenses in that older business. A new online title from PopCap Games, a company acquired last year for as much as $1.3 billion, won’t be out this quarter, said Michael Pachter, an analyst with Wedbush Securities.
Fossil Tumbles
Fossil tumbled 37 percent, the most since 1995, to $78.83. Earnings per share in 2012, excluding the impact of its acquisition of Skagen Designs Ltd, will be as much as $5.33, the watchmaker said. Previously, Fossil had forecast a maximum of $5.50. Analysts projected $5.56, the average of estimates compiled by Bloomberg.
Discovery Communications Inc. (DISCA) retreated 6.1 percent to $50.77. The owner of cable networks such as Animal Planet and TLC reported a 28 percent decline in first-quarter profit after a one-time gain last year on Oprah Winfrey’s network, OWN.
Wynn Resorts Ltd. (WYNN) slid 5 percent to $118.89. The casino company founded by billionaire Steve Wynn reported first-quarter earnings fell 19 percent, missing analysts’ projections on lower winnings in Las Vegas.
Investors should buy utilities because the group tends to do better from May through October, when the S&P 500 averages its worst six-month return of the year, according to Sanford C. Bernstein & Co.
Utilities Gain
A gauge of utilities has risen at an average annualized pace of 12 percent from May through October since 1970, compared with a gain of 4.5 percent for the S&P 500, according to data compiled by Bernstein. The group was the second-worst performing among 10 S&P 500 industries, falling 1.7 percent this year through yesterday, as investors snapped up financial and technology shares in anticipation of an economic rebound.
“With political risk rising in Europe and U.S. economic indicators showing tepid growth, we believe investors should consider holding high yielding, low beta regulated utilities during the traditionally low return, high volatility months of May through October,” Hugh Wynne, a New York-based analyst with Bernstein, wrote in a note yesterday.
The market’s historical pattern of lower returns from May to October, first noted by the Stock Trader’s Almanac in 1986, spawned the Wall Street axiom “sell in May and go away.”
The pattern typically reverses during the rest of the year. Since 1970, the S&P 500 returned an average 8.1 percent from November through April, while utilities lagged behind with a 4.4 percent increase, according to data from Bernstein.
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
