Stocks Drop, Euro Trim Gains as Moody’s Reviews Spain Rating
By Michael P. Regan and Rita Nazareth
June 30 (Bloomberg) -- Stocks slid, extending the first quarterly drop in more than a year for U.S. benchmark indexes, the euro pared gains and Treasuries turned higher as a possible downgrade of Spain revived concern about European debt.
The Standard & Poor’s 500 Index lost 1 percent to 1,030.71, extending its second-quarter drop to 12 percent and dropping to the lowest level since Oct. 2. The shared European currency strengthened 0.4 percent to $1.2234 at 4:37 p.m. in New York, trimming a rally of as much as 1 percent. The 10-year Treasury yield decreased one basis point to 2.94 percent after climbing as much as 4 basis points earlier.
Spain’s top credit ranking was placed on review for a possible downgrade by Moody’s Investors Service, which cited “deteriorating” growth prospects and the challenges the government faces to achieve its fiscal targets. The euro rallied earlier and the S&P 500 rallied on signs that funding pressures on European lenders are easing and American manufacturing is withstanding turmoil in financial markets.
“Investors still don’t have major conviction on the market right now,” said John Carey, a Boston-based money manager at Pioneer Investment Management, which oversees more than $200 billion. “Spain has been under scrutiny for quite some time. That has put some pressure on stocks. We still don’t know the extent of this European sovereign debt situation.”
Alcoa Inc., Walt Disney Co. and Hewlett-Packard Co. slid at least 2.3 percent to lead losses in the Dow Jones Industrial Average. The 30-stock gauge fell 96.28 points, or 1 percent to 9,774.02, the lowest level since Nov. 3.
‘Window Dressing’
Investors said some of today’s stock-market losses may be explained by window dressing, the process in which money managers sell shares of the worst-performing companies at the end of the quarter.
“A lot of window dressing could be going on here,” said Eric Teal, who oversees about $4.5 billion as chief investment officer at First Citizens BancShares Inc. in Raleigh, North Carolina. “On top of that, the news on Spain possibly getting downgraded triggered some selling.”
More than $7 trillion has been erased from the value of global equities since April 15 peak on concern Europe’s debt crisis and China’s efforts to contain inflation will stifle the global economic recovery. Equities tumbled yesterday, sending the S&P 500 down 3.1 percent, after U.S. consumer confidence unexpectedly declined and a Chinese economic index was revised lower.
The S&P 500 has retreated 15 percent from this year’s high on April 23 and is down 7.6 percent in 2010.
Valuation
Stocks in the U.S. are the cheapest relative to bonds in three decades, a sign it’s time to buy after the biggest equity retreat since the bull market began 15 months ago, according to Michael Darda, the chief economist for MKM Partners LLC.
Income for S&P 500 companies may reach $92 a share in 2010 excluding capital gains and losses, giving the index an earnings yield of 8.8 percent, said Darda, whose Stamford, Connecticut- based firm advises about 400 institutional clients. That’s the highest relative to the interest rate on investment-grade debt since the 1970s, according to data compiled by MKM.
“I’m definitely not a seller,” said Barton Biggs, who helps oversee $1.4 billion at New York-based hedge fund Traxis Partners LP. “We’re going to get better employment numbers, stabilized housing numbers, we’re going to be growing at 3 percent in the second half of this year. The S&P 500 is going to finish the year 10 to 15 percent higher than it is today.”
ADP Disappoints
Early gains in U.S. stocks were limited today after companies in the U.S. added fewer workers to payrolls in June than forecast, according to data from a private report based on payrolls. The 13,000 gain followed a revised 57,000 increase the prior month, data from ADP Employer Services showed today. Economists surveyed by Bloomberg News had anticipated an increase of 60,000, according to the median forecast.
The U.S. Labor Department will release its monthly jobs data on July 2. Employment fell in June for the first time this year, reflecting a drop in federal census workers as the decennial population count began to wind down, economists said before the report.
The Stoxx Europe 600 Index slipped 0.2 percent as declines in raw-material producers overshadowed gains in banks. Rio Tinto Group Plc, the world’s third-largest mining company, slumped 2.6 percent in London, while Banco Santander SA led gains in Spanish banks with a 3.5 percent rally in Madrid.
Bank Bonds Protection
The cost to protect bank bonds from default fell the most in more than a week. Credit-default swaps on the Markit iTraxx Financial Index of 25 banks and insurers declined 6.5 basis points to 165.5, according to JPMorgan Chase & Co. in London, the biggest one-day decline since June 18.
Banks tomorrow need to repay 442 billion euros in 12-month ECB funds and demand for the three-month cash was a litmus test for the health of Europe’s banking system, economists said. The Frankfurt-based central bank said 171 institutions asked for money at its benchmark interest rate of 1 percent.
Crude oil fell, capping the first quarterly decline since 2008, as a government report showed that U.S. gasoline stockpiles increased for the first time in eight weeks and crude supplies declined. Crude for August delivery dropped or 0.4 percent to $75.63 a barrel, the lowest settlement since June 14. Futures fell 9.7 percent for the quarter and have retreated 4.7 percent this year.
Asian stocks fell, dragging the MSCI Asia Pacific Index to its biggest quarterly decline in more than a year, as yesterday’s slump in U.S. consumer confidence fueled concerns about the strength of the global economy. The benchmark lost 1 percent and slumped 9.8 percent since March 31.
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