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U.S. stocks tumbled, falling for the
fourth time in five weeks and erasing the Dow Jones Industrial
Average’s 2012 gain, amid concern the global economy is slowing
and Europe’s debt crisis is worsening.
The Standard Poor’s 500 Index slumped 2.5 percent
yesterday, the most since November, after American employers
added the fewest workers in a year during May. All 10 industries
in the benchmark index slipped in the holiday-shortened week.
Energy shares sank 4.6 percent as oil had the biggest monthly
decline in more than three years. An index of homebuilders
tumbled 10 percent, the most since August, amid worse-than-
expected housing data. Facebook Inc. plunged 13 percent.
The SP 500 lost 3 percent to 1,278.04 for the week,
trimming its gain for the year to 1.6 percent. The Dow dropped
336.26 points, or 2.7 percent, to 12,118.57, putting it below
2011’s closing level and erasing a year-to-date rally that had
been 7.1 percent as of May 1.
“People are just de-risking,” Joseph Keating, who helps
oversee $1 billion as chief investment officer at CenterState
Wealth Management in Birmingham, Alabama, said in a phone
interview. “It’s unclear what policies would be put in place by
the European leaders to basically facilitate whatever is going
to happen in Greece, along with how to hold the banking system
in Europe together,” he said. In the U.S., “companies are just
not hiring. That puts the recovery at risk.”
Jobs, Manufacturing
Equities declined amid the monthly employment figures and
data showing the U.S. economy grew more slowly in the first
quarter than previously estimated. A gauge of manufacturing in
the euro zone dropped to a three-year low while China’s
Purchasing Managers’ Index showed the weakest production growth
since December. Europe’s debt crisis intensified as investors
focused on Spain’s finances and Greece’s ability to remain in
the euro region.
Concern about a global slowdown and a worsening situation
in Europe drove the SP 500 down 6.3 percent in May for the
biggest monthly loss since September. Treasuries rallied,
pushing yields on 30-year and 10-year debt to record lows. The
Chicago Board Options Exchange Volatility Index (VIX), which measures
the cost of using options as insurance against declines in the
SP 500, surged 23 percent to 26.66, the highest since December.
The retreat in equities has cut the SP 500’s valuation to
12.9 times earnings from the last 12 months. That’s about 21
percent below average of 16.4 since 1954, according to data
compiled by Bloomberg. Earnings in the SP 500 are forecast to
reach a record $104.74 a share in 2012. The SP 500’s earnings
yield reached 7.74 percent, close to the highest on record when
compared with the 10-year Treasury rate, according to Bloomberg
data going back to 1962.
‘Very Bullish’
“I’m actually getting prepared for turning very bullish”
on stocks, David Rosenberg, Toronto-based chief economist and
strategist at Gluskin Sheff Associates Inc. said in a phone
interview. “But several things have to fall into place. We’re
going to have to get to levels on dividend yields, price-to-
earnings ratios and sentiment that will be consistent with an
onset of a secular bull market.”
The dividend yield for the SP 500 has increased to 2.23
percent from last year’s low of 1.78 percent. During the depths
of the U.S. subprime-mortgage crisis, the payout surged to 4.10
percent in March 2009.
Exxon Mobil Corp. (INDU), the largest energy producer by market
value, fell the most in the Dow, sinking 5.1 percent to $77.92.
Crude fell to the lowest level in almost eight months amid
concern fuel demand may tumble. Cabot Oil Gas Corp. slipped 10
percent to $31.15.
Homebuilders, Facebook
An SP gauge of homebuilders plunged 10 percent after the
number of Americans signing contracts to buy previously owned
homes fell in April by the most in a year. PulteGroup Inc. (PHM), the
biggest U.S. builder by revenue, slumped 11 percent to $8.26.
D.R. Horton Inc. slipped 11 percent to $15.21 while Lennar Corp. (LEN)
tumbled 11 percent to $25.02.
Facebook plunged 13 percent to $27.72 amid concern the
world’s largest social-networking service will struggle to wring
profit from its 901 million users. The stock has declined 27
percent since it began trading on May 18, and has slipped below
the low end of the $28-to-$35 price range Facebook set for its
initial public offering before boosting the asking price and
number of shares.
Groupon Inc. (GRPN) plunged 20 percent to $9.69, the lowest level
since its November IPO, as a lockup period expired, permitting
insiders to sell shares of the largest daily coupon website.
Edward Lampert
Kohl’s Corp. (KSS) sank 11 percent to $44.70. The retailer said
May same-store sales decreased 4.2 percent. That compares with
the average estimate for a 1.1 percent decline. Sears Holdings
Corp. (SHLD), the department-store chain controlled by hedge fund
manager Edward Lampert, tumbled 15 percent to $48.45.
Joy Global Inc. (JOY) lost 7.5 percent to $55.69. The maker of
PH and Joy mining equipment cut forecasts for full-year
earnings and revenue as mining companies ease capital spending
amid concern over an economic slowdown in China. Caterpillar
Inc., the largest maker of construction and mining equipment,
slipped 4.9 percent to $85.52.
Gold producers jumped as signs of weakening job growth in
the U.S. fueled expectations the Federal Reserve will take
further steps to spur growth, boosting the appeal of the
precious metal as an inflation hedge. Newmont Mining Corp. (NEM), the
largest U.S. gold producer, advanced 3 percent to $50.30 for the
second-biggest advance in the SP 500. Barrick Gold Corp. (ABX)
climbed 4.8 percent to $41.91.
The central bank is close to completing its program to
replace $400 billion of shorter-term debt in its holdings with
longer maturities to support the economy by keeping down
borrowing costs. The program, known as Operation Twist, ends
this month. The Fed bought $2.3 trillion of debt in two rounds
of quantitative easing since the subprime-mortgage crisis that
have become known as QE1 and QE2.
The Fed is more likely to provide added stimulus when its
current effort winds down, according to Morgan Stanley. The
probability of more central bank policy action is 80 percent, up
from 50 percent before yesterday’s jobs report, the firm said.
To contact the reporter on this story:
Lu Wang in New York at
lwang8@bloomberg.net
To contact the editor responsible for this story:
Nick Baker at
nbaker7@bloomberg.net
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