U.S. Stocks Drop as S&P 500 Posts 12% Loss for Second Quarter

By Kelly Bit

June 30 (Bloomberg) -- U.S. stocks fell, extending the first quarterly drop in the Standard & Poor’s 500 Index in more than a year, after Moody’s Investors Service’s warning that it may downgrade Spain revived concern about sovereign debt and snuffed out an earlier rally.

Alcoa Inc., Walt Disney Co. and Hewlett-Packard Co. lost at least 2.3 percent to lead losses in the Dow Jones Industrial Average after Moody’s said Spain’s Aaa rating is in jeopardy. General Mills Inc. slumped 3.7 percent after its forecast for the year ending in May 2011 trailed analysts’ estimates.

The S&P 500 fell 1 percent to 1,030.71 at 4 p.m. in New York. It has declined 12 percent since March 31, breaking a four-quarter winning streak that drove the benchmark index for U.S. stocks up 47 percent. The Dow decreased 96.28 points, or 1 percent, to 9,774.02 today, giving it a second-quarter decrease of 10 percent. The Nasdaq-100 Index, which gets 63 percent of its value from technology companies, slumped for an eighth straight day, the longest stretch of losses since 2006.

“The glass is half empty when you’re at the end of the quarter,” said Wayne Wilbanks, chief investment officer at Wilbanks, Smith & Thomas in Norfolk, Virginia, which manages $1.5 billion. “It’s continued concerns with the economic slowdown and global deterioration issues as highlighted by the Spanish potential downgrade and the jobs data.”

ADP Report

Companies in the U.S. added fewer workers in June than forecast, according to data today from ADP Employer Services. Shares had advanced earlier after the European Central Bank said it will lend the region’s banks less money than economists had forecast, spurring speculation the region’s lenders are stronger than had been expected. The S&P 500 had gained as the Institute for Supply Management-Chicago Inc.’s business barometer showed manufacturing is overcoming turmoil in financial markets.

Any gains today were limited after companies in the U.S. added fewer workers 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 ADP data came as investors awaited a Labor Department report July 2 that will show the U.S. lost jobs for the first time this year, reflecting a drop in federal census workers as the population count began to wind down, economists said.

European Bank Loans

U.S. futures rallied in trading before the open of exchanges after the European Central Bank said banks sought 131.9 billion euros ($161.8 billion) in three-month loans as a yearlong facility expires. The figure amounts to about half the level the market was expecting to be borrowed from the central bank, said Jacques Porta, a fund manager at Ofi Patrimoine.

“This amounts to the stress test the U.S. banking industry had last year and we didn’t,” said Paris-based Porta, who oversees about $425 million in stocks. “European banks are one of the weakest links in global equities. Investors were afraid the ECB would confirm this, so it’s good news.”

The S&P 500 is valued at 14.9 times projected profits, according to Bloomberg data. Shares of raw-material producers, financial and energy companies led the decline, dropping at least 13 percent. Alcoa, Microsoft Corp. and General Electric Co. led the Dow’s losses in the second quarter, declining at least 20 percent.

S&P 500’s Decline

The S&P 500 has tumbled 15 percent from this year’s high on April 23 on concern a sovereign-debt crisis in Europe and China’s moves to slow the world’s largest emerging economy will dent global growth.

Stocks are the cheapest relative to bonds in three decades, a sign it’s time to buy, Michael Darda, the chief economist for MKM Partners LLC, said in a phone interview.

“From a risk-reward standpoint these are good entry prices,” said Robert Doll, who helps oversee $3.36 trillion as vice chairman and chief equity strategist at New York-based BlackRock Inc. “I think the risk of a double-dip recession is low.”

The S&P 500 has in recent days been testing levels watched by analysts who study charts and patterns. S&P 500 futures rebounded at 1,035 in May and at 1,038 earlier this month. The S&P 500 fell as low as 1,028.33 at 3:45 p.m. in New York, the lowest price since Oct. 2, according to data compiled by Bloomberg. The S&P 500’s decline in the past two weeks started after the index failed to stay above a level identified by chart analysts as bullish: its average price in the past 200 days.

Wal-Mart, Monsanto

All 10 groups in the S&P 500 declined today. Wal-Mart Stores Inc. slipped 1.7 percent to $48.07. The world’s biggest retailer may sell debt in a three-part benchmark offering, according to a person familiar with the transaction. The 5-, 10- and 30-year bonds may be sold as soon as today.

Monsanto Co. slumped 2.4 percent to $46.22. The world’s largest seed company posted a 45 percent drop in third-quarter profit as its Roundup herbicide lost money and corn-seed earnings fell.

General Mills retreated 3.7 percent to $35.52. The maker of Lucky Charms cereal and Progresso soup reported a 41 percent drop in fourth-quarter profit and gave an earnings forecast for the year ending in May 2011 that trailed analysts’ estimates.

AT&T Inc. lost 1.1 percent to $24.19. The largest U.S. phone company is losing its exclusive claim on Apple Inc.’s iPhone. Analysts say Verizon Wireless may sell as many as 12 million next year after it begins offering the device and widen its lead over AT&T. Verizon, the largest U.S. mobile-phone carrier, dropped 2.1 percent to $28.02.

3M, Ford

3M Co., the maker of 55,000 products from Post-It Notes to Scotch tape, was the only company to gain in the Dow. It advanced 0.6 percent to $78.99 as business activity in the U.S. expanded in June for a ninth straight month. Deere & Co., the world’s farm equipment maker, increased 0.5 percent to $55.68.

Ford Motor Co. gained 2 percent to $10.08. The second- largest U.S. automaker said it will pay about $3.8 billion in cash to a union health-care fund today, a sign the company is confident that Chief Executive Officer Alan Mulally’s focus on the namesake brand will generate cash.

Companies involved in trying to halt the flow of oil from a ruptured BP Plc well in the Gulf of Mexico rallied after the first hurricane of the season headed away from the area.

BP increased 4.4 percent to $28.88. Anadarko Petroleum Corp., the Texas oil company that owns a 25 percent stake in BP’s well, fell 1.6 percent to $36.09. Halliburton Co. advanced 0.3 percent to $24.55.

Other oil drillers also gained. Baker Hughes Inc. increased 1.8 percent to $41.57. Diamond Offshore Drilling Inc. rose 3.4 percent to $62.19.