Thursday, June 23, 2011

U.S. Stocks Decline Amid European Debt Woes as Jobless Claims Increase

U.S. stocks fell, sending the Standard & Poor’s 500 Index down for a second day, amid concern about the effects of the European debt crisis on banks and as American jobless claims rose more than forecast.

JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C) lost 1.3 percent as European Central Bank President Jean-Claude Trichet said the debt crisis threatens to infect banks. Chevron Corp. (CVX) and Alcoa Inc. (AA) dropped more than 2.4 percent as a rising dollar sent commodities down. Aflac Inc. (AFL), the largest seller of supplemental health insurance, slid 2.1 percent on plans to sell bonds after a $610 million loss on Europe banks.

The S&P 500 slumped 1.4 percent to 1,269.26 at 9:34 a.m. in New York. The decline threatened the 2011 gain for the index, which is up 1 percent this year so far. The Dow Jones Industrial Average fell 160.26 points, or 1.3 percent, to 11,949.41.

“It’s extraordinarily discouraging,” said Randy Bateman, chief investment officer of Huntington Asset Management in Columbus, Ohio, which oversees $14.8 billion. “We’re just ending QE2 and the intent of that was to build employment and sustain the economy. That hasn’t accomplished half of those objectives. The band-aid being placed isn’t really to bailout Greece. It’s to bailout the banks that hold Greek paper. If you lead people to think that their banks are going to be insolvent, that creates more problems.”

Fed Cuts Forecast
The benchmark gauge for American equities yesterday snapped a four-day rally after the Federal Reserve lowered its forecast for economic growth. The S&P 500 has surged 23 percent since Fed Chairman Ben S. Bernanke’s Aug. 27 speech in Jackson Hole, Wyoming through yesterday, where he foreshadowed the second round of bond purchases, known as quantitative easing or QE, to boost the economy. The index has fallen 4.3 percent this month through yesterday amid concern that Greece will default on its debt and weaker-than-expected economic reports.

Global stocks fell today as Trichet said risk signals for financial stability in the euro area are flashing “red” as the debt crisis threatens to infect banks.

“On a personal basis I would say ‘yes, it is red’,” Trichet said late yesterday in Frankfurt after a meeting of the European Systemic Risk Board, referring to the group’s planned “dashboard” to monitor risks. “The message of the board is that” the link between debt problems and banks “is the most serious threat to financial stability in the European Union.”

The Greek crisis has all the elements that dogged Russia during its 1998 default, according to Sergei Ulatov, the resident World Bank economist in Moscow.

“The Greece example reminds me very much of what was happening in Russia in 1998, but on a much larger scale,” Ulatov said in an interview during the Russia and CIS Capital Markets Forum organized by Euromoney in London today.

Stock-futures extended losses before the start of regular trading as a report showed that applications for jobless benefits increased 9,000 in the week ended June 18 to 429,000, Labor Department figures showed today. The level of claims exceeded the highest estimate in a Bloomberg News survey in which the median projection called for 415,000 filings. The number of people on benefit rolls was little changed, while those getting extended payments rose.

Purchases of new houses probably dropped in May for the first time in three months, showing the real-estate market is struggling to gain traction. Sales likely decreased 4 percent to a 310,000 annual rate last month, according to the median forecast of 67 economists surveyed by Bloomberg News. The Commerce Department’s report is due at 10 a.m. in Washington.

Banks Slump
Banks declined. JPMorgan retreated 1.3 percent to $40.17. Citigroup fell 1.3 percent to $38.98.

Aflac slid 2.1 percent to $44.43. The largest seller of supplemental health insurance, slid 1.4 percent after saying it may issue as much as 100 billion yen ($1.24 billion) in debt as it records losses tied to investments in banks from Greece, Ireland and Portugal. The second-quarter losses on the assets will probably be about $610 million, the insurer said today.

Energy and raw material producers slumped as the dollar rose, curbing demand for commodities as alternative investments. Chevron slid 2.4 percent to $98.64. Alcoa dropped 2.8 percent to $14.86.

ConAgra Foods Inc. (CAG) decreased 2.4 percent to $24.80. The food manufacturer reported profit that missed analysts’ estimates. The company said its consumer food unit was “challenged by difficult conditions” in the latest quarter because of higher costs, according to a statement. The company, the maker of Chef Boyardee pasta and Slim Jim snacks, raised prices earlier this year to help offset higher wheat costs. The U.S. Department of Agriculture predicts food prices will rise 4 percent in 2011.

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