BLBG: U.S. Stocks Fall Amid Concern Europe’s Crisis Will Worsen
U.S. stocks fell, after last week’s drop in the Standard & Poor’s 500 Index, on concern a European Union summit will fail to tame the region’s debt crisis.
Bank of America Corp., Caterpillar (CAT) Inc. and Chesapeake Energy Corp. (CHK) dropped more than 2.9 percent to pace losses among the largest companies. Pfizer Inc. (PFE) and Bristol-Myers Squibb Co. (BMY) fell more than 1.5 percent after their top experimental drug, blood thinner Eliquis, failed to win U.S. regulators’ approval.
The S&P 500 slid 1.5 percent to 1,314.84 at 10:34 a.m. New York time. The Dow Jones Industrial Average fell 156.63 points, or 1.2 percent, to 12,484.15. Trading in S&P 500 companies was down 9.7 percent from the 30-day average at this time of day.
Billionaire investor George Soros called on Europe to start a fund to buy Italian and Spanish bonds, warning that a failure by leaders meeting on June 28 to produce drastic measures could spell the demise of the currency. German Chancellor Angela Merkel rejected joint euro-area bonds or bills, saying that introducing shared debt now would be “counterproductive.”
“I don’t think the EU summit is going to come out with anything extraordinary,” said Wayne Lin, a money manager at Baltimore-based Legg Mason Inc. His firm oversees $627 billion. “Soros’ views are really extreme, but definitely don’t help. There’s just going to be more volatility.”
European Central Bank Governing Council member Ewald Nowotny said the ECB would rather have the European Financial Stability Facility buy government bonds than itself, according to an interview in Austria’s Kurier newspaper. Nowotny said he expects the European Union’s summit to define the general direction of policy measures to fight the debt crisis.
‘Unrealistic Expectations’
“We have to be careful not to create great, unrealistic expectations which mean that disappointment is a foregone conclusion,” he said. “The proposals include a political union, a fiscal union and a banking union. All three proposals are very far-reaching.”
Signs of slower growth and concern over Europe’s crisis pushed stocks down 7.3 percent from an almost four-year high in April. Data today showed that demand for new U.S. homes rose more than forecast in May as mortgage rates dropped, bolstering the residential real-estate market while other parts of the world’s largest economy cool.
All 10 groups in the S&P 500 fell today as energy, financial and industrial shares had the biggest losses. Bank of America dropped 3.3 percent to $7.68. Caterpillar, the world’s largest maker of construction equipment, fell 2.9 percent to $82.47. Chesapeake Energy slid 5.3 percent to $17.63.
Pfizer Slumps
Pfizer fell 1.5 percent to $22.39, while Bristol-Myers sank 3.3 percent to $34.21. The Food and Drug Administration wants clarification of information from already completed trials, and isn’t seeking new studies, the companies said in a statement. Eliquis, targeted for patients with a type of heart arrhythmia, would have $2.5 billion a year in sales by 2015 if approved, said Tim Anderson, a Sanford C. Bernstein & Co. analyst.
Facebook Inc. (FB), the biggest social-networking operator, decreased 2.1 percent to $32.36. The decline followed a 22 percent advance over the previous two weeks.
Quest Software Inc. (QSFT) jumped 5.4 percent to $27.63. The software maker that agreed to be bought by a group led by Insight Venture Partners said it has received a higher offer of $27.50 a share in cash.
Europe’s debt crisis is putting pressure on corporate earnings globally with companies from Procter & Gamble Co. (PG) to Danone (BN) cutting forecasts and signaling profits will fall at more companies this year.
Corporate Earnings
Analysts predict members of the S&P 500 in the U.S. will report a 1.1 percent average drop in second-quarter earnings, after estimating a gain as recently as last month, according to data compiled by Bloomberg. That would be the first decline in 11 quarters after a 6.2 percent average increase in the first quarter. Alcoa Inc. (AA), the first company in the Dow to report results, is scheduled to release its figures on July 9.
In Asia, the chairman at computer manufacturer Compal Electronics Inc. said last week that concern about a global slowdown is making him less optimistic about the second half of the year. Paris-based Danone lowered its 2012 profitability forecast as Spanish shoppers switch to cheaper brands of yogurt.
“There is a lot of trepidation about second-quarter earnings,” Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York, said in a June 22 interview. He oversees about $2 billion including shares of Apple Inc. and DuPont Co. “You are very unlikely to see companies coming out with favorable outlooks given the problems in Europe and the slowing growth in the U.S. and China.”
Energy Shares
At a time of record fuel demand, bountiful oil and natural gas, and expanding economies, no stocks are doing worse in the world than energy producers from BP Plc to Hess Corp.
The MSCI World Energy Index (MXWO) has declined 9.6 percent this year, more than any other group, according to data compiled by Bloomberg. The gauge has climbed 45 percent since equities bottomed in 2009, less than any industry with earnings tied to economic growth. In the U.S., the stocks are at the cheapest levels relative to the Standard & Poor’s 500 Index since 2009.
The divergence reflects the transformation of an industry where growing consumption of energy has been met with even bigger gains in supply. U.S. crude inventories are the highest since 1990 and natural gas prices have lost 38 percent in 12 months amid a glut spurred by hydraulic fracturing. Bears say energy producers, making up about 10 percent of global stocks, will keep equities from advancing. Bulls say the market will rally when their shares rebound.
“The S&P 500 will have a tough time making meaningful progress until the energy sector bottoms and begins to move higher,” Jim Russell, the Cincinnati-based chief equity strategist at U.S. Bank Wealth Management, which oversees about $116 billion, said in a phone interview on June 20. “Even though the valuations of the stocks are cheap, the fundamentals have not yet bottomed.”
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
