U.S. Stock Futures Decline as Greenspan Warns Crisis Yet to End

By Sarah Jones

May 21 (Bloomberg) -- U.S. stock-index futures fell after Alan Greenspan said the financial crisis is not over and the U.K.’s credit outlook was downgraded at Standard & Poor’s Rating Services.

Exxon Mobil Corp., the world’s largest company by market value, and ConocoPhillips may drop as crude retreated after the Federal Reserve said the economic recovery could fail to take root in the U.S. Caterpillar Inc., Wal-Mart Stores Inc. and American Express Co. declined in German trading.

Standard & Poor’s 500 Indexfutures expiring in June lost 0.6 percent to 894.3 at 12:33 p.m. in London. Dow Jones Industrial Average futures dropped 0.5 percent and Nasdaq-100 Index futures declined 0.6 percent.

The Fed has “painted a darker picture of the U.S. outlook than had been suggested and Greenspan also popped up to suggest that banks are in a worse state,” said David Morrison, a London-based market strategist at GFT. “Stock indices are starting to look tired. The markets are struggling to hold onto gains and are failing.”

European shares declined as Standard & Poor’s downgraded its credit outlook for the U.K. to “negative” from “stable,” citing the government’s deteriorating finances brought on by the worst recession since World War II.

U.S. stocks erased gains in the final hour of trading yesterday after minutes from the Federal Reserve’s April meeting predicted a deeper recession and American Express said growth won’t return to levels from before the downturn in the economy.

‘Unfunded Capital Requirement’

Comments from Greenspan after the close of trading yesterday suggested the former Federal Reserve chairman sees a bigger capital shortfall in the banking system than reflected in regulators’ stress tests on the 19 biggest U.S. lenders.

“There is still a very large unfunded capital requirement in the commercial banking system in the United States and that’s got to be funded,” Greenspan said in an interview yesterday in Washington. He also said that “until the price of homes flattens out we still have a very serious potential mortgage crisis.”

The benchmark S&P 500 has surged 34 percent since March 9 on speculation the global recession is easing. An index of U.S. leading indicators is expected to rise in April for the first time in 10 months, economist said before the report today. Other data may show manufacturing shrank at a slower pace and jobless claims fell.

U.S. stocks are at the start of a bull market that may spur an 88 percent advance in the S&P 500 in the next two or three years, Laszlo Birinyi, the founder of Westport, Connecticut- based research and money-management firm Birinyi Associates Inc. said in a Bloomberg interview yesterday.

Exxon Retreats

Exxon and ConocoPhillips, the second-largest U.S. refiner, may retreat as crude oil dropped for the first time in four days, trading below $61 a barrel.

Caterpillar, the world’s largest maker of bulldozers and excavators, lost 0.8 percent to $37 in Germany. Wal-Mart, the biggest retailer, dropped 1 percent to $48.47. American Express, the largest U.S. credit-card issuer by purchases, retreated 1.1 percent to $23.72.

To contact the reporters on this story: Sarah Jones in London at sjones35@bloomberg.net.