U.S. stocks slid, giving the Standard & Poor’s 500 Index its biggest two-day drop since March, as concern grew Europe’s debt crisis will spread and American lawmakers failed to agree on cutting the deficit.
JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) fell more than 3.2 percent, driving financial shares in the S&P 500 down the most since June 1, as Italian and Spanish government bonds sank. Alcoa Inc. (AA) tumbled 2.9 percent before the aluminum producer started the earnings season after the market close. All 10 S&P 500 industries slumped, falling at least 0.7 percent.
The S&P 500 retreated 1.8 percent to 1,319.49 at 4 p.m. in New York, its lowest level since June 29. The gauge fell 2.5 percent over two sessions, the most since March 16. The Dow Jones Industrial Average declined 151.44 points, or 1.2 percent, to 12,505.76 today.
“It’s a combination of a worsening of the debt crisis in Europe, and deficit and debt uncertainty in the U.S.,” said Eric Teal, chief investment officer at First Citizens Bancshares Inc. in Raleigh, North Carolina, which manages $4 billion. “The markets will remain under pressure until the debt crisis in Europe is perceived to be better contained.”
The S&P 500 advanced 0.3 percent to 1,343.80 last week, extending its climb from June 24 through July 8 to 5.9 percent. That’s the biggest two-week increase since October 2009. Equities have rebounded in July after the S&P 500 tumbled 3.2 percent in May and June. The index was 10.39 points away from its April 29 close, which was the highest level in almost three years, before retreating at the end of last week as the nation added 83 percent fewer jobs in June than economists forecast.
Bailout Funds
Euro-area countries may have to double their bailout fund to 1.5 trillion euros ($2.1 trillion) to cover a crisis in Italy, the European Central Bank said, according to German newspaper Die Welt, citing unidentified “high-ranking” people at central banks. German Finance Minister Wolfgang Schaeuble dismissed the report. The Financial Times cited unidentified senior officials as saying European leaders are prepared to accept that Greece should default on some of its bonds.
U.S. President Barack Obama said today he will continue to press congressional leaders for “the largest possible deal” on a package of significant deficit cuts.
“Now is the time to deal with these issues,” Obama said at a news conference before resuming talks this afternoon with bipartisan congressional leaders toward a compromise on reducing deficits and raising the $14.3 trillion federal debt ceiling before the government exhausts its borrowing authority on Aug. 2. “If not now, when?”
Financial Companies
Financial companies led losses among 10 groups in the S&P 500, dropping 2.8 percent collectively. Bank of America retreated 3.3 percent to $10.35, its lowest price since May 2009, and JPMorgan fell 3.2 percent to $39.43. Morgan Stanley (MS) lost 3.2 percent to $21.58 and Citigroup Inc. (C) slipped 5.3 percent, the most since January, to $39.79.
The KBW Bank Index fell 2.8 percent as all 24 of its stocks retreated. Wells Fargo, the largest U.S. home lender, dropped 2.5 percent to $27.59.
Stocks will rise 15 percent over the next year, in part because investors are able to look past the European debt crisis and a U.S. unemployment rate stuck over 9 percent, Laszlo Birinyi said.
“Yes, we are aware that there are economic issues, there are concerns and fears, but somehow to say that is to say the market doesn’t know that. But the market does,” said Birinyi, the president and founder of Westport, Connecticut-based research and money management firm Birinyi Associates Inc. “What I worry about are situations that the market doesn’t understand,” he said. “Things like Greece and employment and so forth, these are well within the scope of the market to understand and discount.”
Alcoa Reports
Alcoa was the first Dow-average company to release second- quarter results after-hours today. The largest U.S. producer of the metal retreated 0.4 percent to $15.84 in trading following the close of regular trading. The stock fell 2.9 percent to $15.91 during normal hours as metal prices dropped on the London Metal Exchange and Australia announced a new carbon tax. Twelve companies in the benchmark S&P 500, including JPMorgan, Citigroup and Google Inc., will publish their earnings this week.
‘Undervalued Assets’
While S&P 500 companies are poised to report the smallest quarterly earnings increase since the equity bull market began in 2009, growth for the measure is climbing back to its average since the 1960s as valuations are stuck near credit-crisis levels. David Kelly, who helps oversee about $445 billion as chief market strategist for JPMorgan Funds, says that means stock investors are buying an “undervalued asset.”
Energy companies lost 2 percent as oil dropped after Austria’s Finance Minister Maria Fekter said euro-area finance ministers would discuss Italian debt issues.
Chevron Corp. (CVX), the second-largest U.S. oil company, slumped 1.4 percent to $104.41 as crude for August delivery fell 1.1 percent to settle at $95.15 a barrel on the New York Mercantile Exchange, the lowest level since July 1.
Caterpillar Inc., the world’s largest maker of construction equipment, dropped 2 percent to $108.16. Raw-materials producers in the S&P 500 lost 2.1 percent as a group, the second-most in the benchmark index.
GM retreated 2.6 percent to $30.75 as European carmakers declined after Renault forecast that its sales this year will drop as much as 2 percent in Europe.
News Corp. had the biggest retreat in the S&P 500, sliding 7.6 percent to $15.48. U.K. political leaders pressed Rupert Murdoch to drop News Corp. (NWSA)’s bid to take full control of British Sky Broadcasting Group Plc (BSY LN) as the clamor over reports of phone hacking at the News of the World newspaper intensified.
Further Declines
Arch Chemicals Inc. (ARJ) soared 12 percent to $47.37 after Lonza Group AG, the world’s biggest maker of drug ingredients, agreed to pay $47.20 per share for the maker of products that kill micro-organisms. Lonza said it will pay $1.2 billion in cash. Including debt, the acquisition values Arch at $1.4 billion.
The S&P 500 may extend its drop to about 1,275, which is near the gauge’s average level over the last 200 days, a level monitored by analysts who study charts to make forecasts, according to Katie Stockton, MKM Partners’ chief market technician.
“The market was extremely overbought from a short-term perspective going into this week,” Stockton said in an interview from Greenwich, Connecticut. “We probably have a few more days of downside to go,” she said. “There’s support for the S&P 500 at around 1,275, which is the 200-day moving, so I’m looking for a deeper pull-back.”
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