Dow Falls to Four-Month Low as Greece Overshadows Economy

By Rita Nazareth - May 16, 2012 4:37 AM GMT+0700

The Dow Jones Industrial Average (INDU) fell to an almost four-month low as Greece’s failure to form a new government offset better-than-estimated American economic data.

Commodity (SPXL1) shares tumbled as the Dollar Index extended its longest rally ever, reducing the appeal of raw materials. Avon Products Inc. (AVP) slumped 11 percent as Coty Inc. withdrew its $10.7 billion offer for the biggest door-to-door cosmetics seller. Home Depot Inc. (HD), the largest U.S. home-improvement retailer, slid 2.4 percent as it forecast slowing sales gains. Lennar Corp. (LEN) and D.R. Horton Inc. (DHI) jumped at least 2.5 percent as homebuilder confidence climbed to the highest level since 2007.

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Traders work at the New York Stock Exchange. Photographer: Scott Eells/Bloomberg

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May 15 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. The Dow Jones Industrial Average fell to an almost four-month low as Greece’s failure to form a new government offset better-than-estimated American economic data. (Source: Bloomberg)

The Standard & Poor’s 500 Index fell 0.6 percent to 1,330.66 at 4 p.m. New York time, dropping 2 percent in three days. The Dow lost 63.35 points, or 0.5 percent, to 12,632, the lowest since Jan. 19. About 7.3 billion shares changed hands on U.S. exchanges, or 9 percent above the three-month average.

“It’s fear of European drama,” said Paul Zemsky, the New York-based head of asset allocation for ING Investment Management. His firm oversees $160 billion. “It seems obvious that leaving the euro would be a disaster for Greece and very costly to its economy. Yet they seem to be on a path where that could happen. We’ve had some good U.S. economic data, but people are afraid to hold equities. It’s extremely frustrating.”

Stocks fell for a third day and the euro tumbled to a four- month low amid concern Greece will leave the shared currency. The European country will hold new elections after President Karolos Papoulias failed to broker a governing coalition following an inconclusive May 6 vote. The impasse offset American reports showing that manufacturing in the New York region and homebuilder confidence grew more than forecast.

Safety Demand

Investors’ demand for safety pushed up the Dollar Index (DXY), a gauge of the currency against six major peers, for the 12th straight day. The dollar gain helped send copper, gold and oil lower. Gauges of energy and raw material shares in the S&P 500 slumped at least 1.4 percent. Freeport-McMoRan Copper & Gold Inc. (FCX) dropped 4.8 percent to $32.65. Alcoa Inc. (AA) slid 2.4 percent to $8.71.

Pacific Investment Management Co., which manages the world’s largest bond fund, doesn’t see the European currency union surviving in its present form. The most probable outcome is that the 17-nation euro area will evolve into a smaller union centered on France, Germany, Italy and Spain, and underpinned by much stronger coordination and financing, he said.

“The status quo is no longer an option for Europe over the three to five year horizon,” Pimco Chief Executive Officer Mohamed El-Erian wrote in a report outlining the Newport Beach, California-based company’s medium-term economic outlook.

Avon Tumbles

Avon tumbled 11 percent, the most in the S&P 500, to $18.71. Coty, the maker of perfumes by Beyonce Knowles and Heidi Klum, said attempts to speak to Avon board members, including Chairman Andrea Jung and Chief Executive Officer Sheri McCoy, failed after it received a two-sentence e-mail requesting a deadline extension. Coty had given yesterday as a cutoff date for a response when it made its $24.75-a-share bid last week.

Home Depot retreated 2.4 percent to $48.67 after forecasting sales this year will slow from the first quarter because warm weather pulled forward purchases of plants and gardening equipment.

A measure of homebuilders in S&P indexes rallied 2.2 percent on signals of an improving outlook for construction. Lennar increased 2.8 percent to $29.16. D.R. Horton advanced 2.5 percent to $17.33.

JPMorgan Dividend

JPMorgan Chase & Co. (JPM) rebounded from the biggest two-day drop since 2009, climbing 1.3 percent to $36.24. Chief Executive Officer Jamie Dimon, responding to shareholders at the annual meeting after disclosing a $2 billion trading loss last week, said he sees no reason the bank’s dividend would be affected.

Groupon Inc. (GRPN) rose 3.7 percent to $12.17, after soaring as much as 27 percent earlier. The largest daily-deal website reported first-quarter profit that topped estimates, helped by lower marketing costs and expanded international sales.

TJX Cos. rose the most in the S&P 500, climbing 6.9 percent to $42.45. The owner of the T.J. Maxx (TJX) and Marshalls retail chains reported first-quarter profit that beat analysts’ estimates, driven by demand in Europe. Sales rose 11 percent to $5.8 billion from $5.22 billion a year earlier, matching analysts’ estimates.

Facebook Inc. (FB) boosted the price range on its initial public offering to seek as much as $12.8 billion, signaling that Chief Executive Officer Mark Zuckerberg expects demand for the social network to withstand recent market turmoil.

New Range

The new range is $34 to $38 a share, a regulatory filing today shows, indicating a market value of as much as $104.2 billion. That would make Facebook, co-founded in 2004 by Zuckerberg, worth more than Citigroup Inc. (C) and McDonald’s Corp.

Facebook, which has spent more than a week pitching the IPO to investors across the U.S., raised the range even after the S&P 500 yesterday slumped to the lowest level since February. That may spell disappointment for investors if the slump persists, said Bruce McCain, chief investment strategist at the private-banking unit of KeyCorp.

“They get more money upfront if they can make it go, but if the enthusiasm is weak out of the gate, it makes it that much more difficult for the company going forward,” said McCain, who helps oversee more than $20 billion for the Cleveland-based bank. “You would think they would be a little more cautious.”

The S&P 500 took longer than usual to fall 5 percent from its peak this year, a sign that any further retreat in U.S. stocks will be “contained,” according to Sam Stovall of S&P.

28 Days

The benchmark gauge reached the threshold yesterday after spending 28 days without losing 5 percent from its April high. Since 1950 (SPX), it has taken an average 19 days to fall 5 percent, based on a study by Stovall, S&P’s New York-based chief equity strategist.

Among those that took 28 days or longer to occur, only 25 percent eventually turned into corrections, or retreats of more than 10 percent, the data show. Stovall said in an e-mail that he views losses of less than 5 percent as “noise” and those of between 5 percent and 10 percent as pullbacks.

“The duration of this ‘noise’ likely indicates that the ultimate decline will be contained, unless new worries emerge or existing concerns become increasingly intensified in the coming weeks or months,” Stovall wrote yesterday. “The market will eventually bottom in a ‘pullback’ mode.”

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