By Rita Nazareth - May 3, 2012 3:40 AM GMT+0700
U.S. stocks fell, dragging the Dow Jones Industrial Average down from the highest level since 2007, as data showed companies added fewer jobs than economists projected and euro-region unemployment rose to a 15-year high.
Energy and financial shares dropped the most among 10 groups in the Standard & Poor’s 500 Index. Chesapeake Energy Corp. (CHK) tumbled 15 percent after reporting an unexpected loss and saying it may run out of money next year under the weight of the lowest natural-gas prices in a decade. Bank of America Corp. retreated 1.8 percent. Stocks pared their slump as a gauge of homebuilders in S&P indexes advanced to the highest since 2008.
May 2 (Bloomberg) -- U.S. stock-index futures were little changed, indicating the Dow Jones Industrial Average will remain near a four-year high, as investors awaited a private report on payrolls in the world’s largest economy. (Source: Bloomberg)
May 2 (Bloomberg) -- Martin Feldstein, a professor of economics at Harvard University, talks about the impact of Federal Reserve monetary policy on the stock market. Feldstein, speaking with Sara Eisen on Bloomberg Television's "InsideTrack," also discusses the outlook for the U.S. economy. (Source: Bloomberg)
The S&P 500 slid 0.3 percent to 1,402.31 at 4 p.m. New York time, after falling 0.9 percent earlier today. The Dow dropped 10.75 points, or 0.1 percent, to 13,268.57. The Nasdaq Composite Index increased 0.3 percent to 3,059.85 as Apple Inc. (AAPL) shares rebounded. About 6.6 billion shares changed hands on U.S. exchanges, or 1.4 percent below the three-month average.
“The labor market is weak at best,” said Keith Wirtz, who oversees $15 billion as chief investment officer for Fifth Third Asset Management in Cincinnati. “While we thought that we were gaining some momentum, more recent data suggest that things are sluggish. If we start to see a cascade of negative news, the market is going to be vulnerable.”
Equities fell as American companies added 119,000 workers in April, the fewest in seven months, according to a private report. Concern about Europe’s economy also helped drive stocks lower today. The jobless rate in the euro area rose to 10.9 percent in March, manufacturing contracted last month and unemployment in Germany unexpectedly increased.
Economic Surprises
The decline in stocks came after the S&P 500 rose to the highest level in almost a month yesterday. Today’s payroll survey intensified concern that Labor Department data in two days may show the U.S. isn’t growing fast enough to reduce unemployment. An index of forecasting accuracy shows data have been worse than economists predicted. The Citigroup Economic Surprise Index is at minus 20.40, the lowest since October.
“I’ve got a feeling that we might see a downside surprise on the monthly jobs report,” Randy Frederick, managing director of active trading and derivatives at Charles Schwab Corp., said from Austin, Texas. His firm has $1.83 trillion in client assets. “Given how high the market is right now and this softening in economic data, it’s very likely to see a pullback in the range of 5 percent to 10 percent.”
Investors bought stocks this year on better-than-estimated earnings, sending the S&P 500 up 12 percent. About 73 percent of S&P 500 companies that reported results since April 10 have beaten projections, according to data compiled by Bloomberg.
Energy Stocks
Six out of 10 groups in the S&P 500 retreated as energy shares slumped 1.6 percent. Oil dropped from a five-week high after the U.S. Energy Department said stockpiles rose to the highest level in 21 years. Byron Wien, the 79 year-old chairman of Blackstone Group LP’s advisory services unit, is forecasting an annual drop in oil prices for the first time in his career as swelling production pushes global inventories higher.
Chesapeake tumbled 15 percent, the most since 2008, to $16.74. The company slashed its full-year 2012 and 2013 operating cash flow estimates by as much as 48 percent, and increased the amount of assets it plans to sell. This year’s cash flow estimate was lowered to $2.7 billion to $3 billion, from a February forecast of $4.5 billion to $5.2 billion.
The shares surged 6.3 percent yesterday amid plans to strip Chief Executive Officer Aubrey McClendon of the chairman’s job and end an executive perk that allowed him to buy personal stakes in every well the company drilled.
‘Deeply Sorry’
“I’m deeply sorry for all of the distractions of the past two weeks,” McClendon, co-founder of Oklahoma City-based Chesapeake, said on a conference call to discuss first-quarter results today. McClendon said the company may have to sell more assets than planned to cover a gap between cash flow and revenue if natural-gas prices remain depressed.
The KBW Bank Index dropped 0.9 percent as 18 of its 24 stocks retreated. Bank of America declined 1.8 percent to $8.16. Citigroup Inc. (C) slipped 2.7 percent to $32.70.
Bankrate Inc. (RATE) plunged 15 percent, the most since it went public in June, to $20.19. The online publisher of personal finance information reported first-quarter earnings and revenue that fell short of estimates.
OpenTable Inc. (OPEN) sank 15 percent, the biggest decline since going public in 2009, to $37.13. The online restaurant- reservation service forecast revenue in 2012 of no more than $164 million, compared with the average analyst estimate of $168.5 million.
Homebuilders Rally
Stocks pared losses as a gauge of homebuilders in S&P indexes rose 2.5 percent. Lennar Corp. (LEN) gained 2.7 percent to $29.02. D.R. Horton Inc. added 3.4 percent to $17.22.
An International Strategy & Investment survey released yesterday showed sales by homebuilders climbed to a six-year high. The Los Angeles Times reported that the Federal Housing Finance Agency is under pressure to allow Fannie Mae and Freddie Mac to reduce loan principal amounts for struggling borrowers.
A rebound in Apple, the world’s most valuable company, also helped trim some of the earlier slump in equities. Apple rose 0.7 percent to $585.98, after dropping for four straight days.
CVS Caremark Corp. (CVS) rose 2.7 percent to $45.92. The largest provider of prescription drugs in the U.S. reported first- quarter profit that exceeded analysts’ estimates after grabbing customers from Walgreen Co.
Con-way Inc. (CNW) advanced 13 percent to $37. The U.S. trucking company said it earned 45 cents a share excluding some items in the first quarter. Analysts, on average, estimated 34 cents, according to a Bloomberg survey.
Nike at Record
Nike Inc. (NKE), the world’s largest sporting-goods company, surged to an all-time high today. The shares added 2.7 percent to $114.28, extending this year’s rally to 19 percent.
TripAdvisor Inc. (TRIP) surged 17 percent to $42.63 for the biggest gain in the S&P 500. The online travel-recommendation service spun off from Expedia Inc. reported first-quarter profit and sales that topped some analysts’ estimates.
Financial shares are sending a signal that stock investors may be better off without a “sell in May” strategy this year, said Ari H. Wald, a Brown Brothers Harriman & Co. analyst.
The S&P 500’s financial stocks are beating the benchmark this year after lagging behind in 2011. (SPX) The group’s weakness last year preceded five straight months of declines, from May through September, for the S&P 500.
Banks, insurers and other financial companies posted the year’s biggest gain among the S&P 500’s 10 main industry groups through yesterday. Their industry index rose 20 percent, just beating a 19 percent advance in a gauge of technology stocks.
Economic Swings
Another favorable sign is that computer-related companies and other groups sensitive to economic swings are market leaders this year, Wald wrote yesterday in a report. Industries less affected by the economy’s performance were top performers through the first four months of last year.
There are indicators of weakness as well, he wrote. The number of 52-week highs in U.S. stocks after subtracting lows is shrinking, investor concern about a market slump has faded, yields on Treasury debt are low by historical standards, and commodity prices have fallen in the past two months.
The slump in these and other market barometers “has not progressed to the point that they support a bearish outlook as they did in May 2011,” Wald wrote. Instead, they point toward a “lack of full confirmation in either direction,” according to the New York-based analyst.
To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
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