S&P 500 Has Worst Thanksgiving Week Since ’32 Amid Europe Crisis

By Kaitlyn Kiernan and Nikolaj Gammeltoft - Nov 26, 2011 12:01 PM GMT+0700

U.S. stocks tumbled in the worst Thanksgiving-week loss for the Standard & Poor’s 500 Index since 1932 as concern grew that Europe’s debt crisis will spread and American policy makers failed to reach agreement on reducing the federal budget.

Bank of America Corp., Hewlett-Packard (HPQ) Co. and Caterpillar Inc. (CAT) dropped at least 7.6 percent to lead declines in the Dow Jones Industrial Average. (INDU) Energy stocks fell the most in the S&P 500 as oil declined for a second week and as Chevron Corp. (CVX) lost 5.7 percent after it was blocked from drilling in Brazil while the government probes a recent spill. Netflix Inc. (NFLX) slid 18 percent after raising $400 million to bolster cash.

The S&P 500 slid 4.7 percent to 1,158.67, closing at the lowest level since Oct. 7. The Dow fell 564.38 points, or 4.8 percent, to 11,231.78 this week.

“We’ve resumed focus on the European debt issues,” Terry L. Morris, senior equity manager at Wyomissing, Pennsylvania- based National Penn Investors Trust Co., said in a telephone interview. His firm manages about $2.2 billion. “The situation in Europe doesn’t seem to be improving, which makes the market defensive,” he said. “Spending cuts kicking in in the U.S. will be a negative too because it will be a drag on economic growth.”

The S&P 500 (SPX) has fallen for seven days, the longest streak in four months, and has tumbled 7.6 percent so far in November. U.S. equities erased an early advance on the final session of the week as S&P lowered Belgium’s credit rating and Reuters reported that Greece is demanding private investors accept larger losses on their debt.

Debt Concerns

The cost of insuring European sovereign bonds against default rose to a record this week as Germany failed to find buyers for 35 percent of the bonds offered at an auction. German Finance Minister Wolfgang Schaeuble said market turbulence sparked by the euro region’s sovereign-debt crisis will last for “a few months.”

Congress’s special debt-reduction committee failed to reach an agreement this week, setting the stage for $1.2 trillion in automatic spending cuts and fueling concern that economic- stimulus measures that are set to expire will not be renewed. Still, S&P reaffirmed it would keep the U.S.’s credit rating at AA+ after stripping the government of its top AAA grade on Aug. 5.

Stocks fell Nov. 22 as revised Commerce Department figures showed that gross domestic product climbed at a 2 percent annual rate from July through September, less than projected and down from a 2.5 percent prior estimate. U.S. stock exchanges were shut Nov. 24 for Thanksgiving and closed three hours early on Nov. 25.

‘Macro Factors’

“The market’s not trying to distinguish between stocks right now, it’s focused almost exclusively on macro factors,” John Linehan, director of U.S. equities and a portfolio manager at T. Rowe Price Associates Inc., said at a press briefing Nov. 22 in New York. “ There’s a tremendous amount of volatility in the marketplace. The market’s on the gas pedal and the tires are spinning, but we’re really actually not going anywhere.”

Companies most-tied to the economy fell, sending the Morgan Stanley Cyclical Index down 6.2 percent, the most since the week ending Sept. 23. Caterpillar, the world’s largest construction and mining-equipment maker, dropped 7.7 percent to $86.72.

All 10 groups in the S&P 500 fell this week, led by a 6.2 percent slump in energy producers and a 5.8 percent drop in financial shares.

Bank of America (BAC), Netflix

Bank of America declined 11 percent, the most in the Dow, to $5.17, while Citigroup Inc. (C) decreased 10 percent to $23.63. Both are among lenders that may have to temper plans to raise dividends and buy back stock next year as the Federal Reserve toughens capital tests for the biggest U.S. banks.

Netflix sank 18 percent, the most in the S&P 500, to $63.86. Technology Crossover Ventures will purchase $200 million in zero-coupon senior convertible notes due 2018 in the video- streaming and DVD subscription service, and T. Rowe Price Associates Inc. funds will buy $200 million in stock. The transactions suggest Netflix’s cash squeeze may last longer than it had anticipated, said Michael Pachter, an analyst with Wedbush Securities. The company needs to spend more to make its streaming content stand out against a growing list of competitors, he said.

Commodity producers declined as reports showed manufacturing contracted in Europe and may shrink by the most in more than two years in China. AK Steel Holding Corp. (AKS), the third- largest U.S. steelmaker by volume, plunged 16 percent to $7.04. Alpha Natural Resources Inc. (ANR), the coal producer that bought Massey Energy Co. for $7.1 billion in June, lost 15 percent to $18.81.

Chevron in Brazil

Chevron lost 5.7 percent to $92.29. The U.S. oil producer operating the $3.6 billion Frade oilfield off the coast of Brazil was blocked from drilling in the South American country while the government probes a recent spill.

Hewlett-Packard slipped 9.3 percent to $25.39 following profit forecasts that missed analysts’ estimates. Meg Whitman, who took over as chief executive officer two months ago, used her first earnings conference call to tell investors they need to lower their expectations. The first-quarter profit forecast and full-year earnings outlook both missed estimates -- a sign the company is still reeling from a technology-spending slump.

Groupon Inc. plunged 36 percent to $16.75, below its initial public offering price. The largest Internet daily-deal site was dragged down on concern that profit margins will be squeezed by surging marketing costs and competition from rivals such as LivingSocial.com, backed by Amazon.com Inc. Signs that Europe’s credit crisis may be worsening also fueled speculation that Groupon’s international operations will suffer.

Jefferies Group Inc. (JEF) jumped 4.8 percent to $10.65. Egan- Jones Ratings Co.’s analysis of Jefferies, including estimates of tumbling revenue, was “flat out wrong by a country mile,” Chris Kotowski, an Oppenheimer & Co. analyst, said in a report entitled “Another Hack Attack.” Sean Egan, president and founding principal of the ratings company, said the company stands by its analysis.

To contact the reporters on this story: Kaitlyn Kiernan in New York at kkiernan2@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net