By Rita Nazareth - May 4, 2012 3:39 AM GMT+0700
U.S. stocks fell, sending the Standard & Poor’s 500 Index down a second day, amid disappointing service industries data and as investors awaited tomorrow’s jobs report to gauge the pace of growth at the world’s largest economy.
Commodity and technology shares fell the most among 10 S&P 500 groups as Alcoa (AA) Inc. and Hewlett-Packard Co. (HPQ) slid at least 1.5 percent. General Motors Co. (GM) sank 2.4 percent after earnings tumbled 61 percent. Target Corp. (TGT) lost 2.5 percent as April sales missed projections. Green Mountain Coffee Roasters Inc. (GMCR) plunged 48 percent as profit will be less than it expected. Carlyle Group LP advanced 0.2 percent in its first day of trading.
A trader works on the floor of the New York Stock Exchange. Photographer: Michael Nagle/Bloomberg
May 3 (Bloomberg) -- Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., talks about the outlook for the U.S. labor market and economy. Feroli speaks with Scarlet Fu on Bloomberg Television's "InBusiness." (Source: Bloomberg)
May 3 (Bloomberg) -- U.S. jobless claims fell by 27,000 to 365,000, lower than forecast, in the week ended April 28 from a revised 392,000 the prior period, Labor Department figures showed today in Washington. Meanwhile, productivity fell at a 0.5 percent annual rate after a 1.2 percent gain in the prior three months. Michael McKee and Betty Liu report on Bloomberg Television's "In the Loop." (Source: Bloomberg)
May 3 (Bloomberg) -- Peter Solomon, founder of investment bank Peter J. Solomon Co. and a former vice chairman at Lehman Brothers Holdings Inc., talks about the outlook for corporate merger and acquisition activity and U.S. employment. Solomon speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)
The S&P 500 retreated 0.8 percent to 1,391.57 at 4 p.m. New York time, dropping 1 percent in two days. The Dow Jones Industrial Average declined 61.98 points, or 0.5 percent, to 13,206.59. The Russell 2000 Index (RTY) of small companies decreased 1.5 percent to 806.59. About 6.9 billion shares changed hands on U.S. exchanges, or 3.8 percent above the three-month average.
“It’s a bump in the road,” said Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida. His firm oversees more than $300 billion. “The economic data has turned softer. I wouldn’t be surprised to see the jobs report tomorrow disappoint. All that will do is allow the market to work off its overbought condition.”
The two-day drop in stocks, which pulled the Dow down from a four-year high, came as concern about the economy grew. A measure of forecasting accuracy shows economic data have been worse than predicted. The Citigroup Economic Surprise Index is at minus 24.20, the lowest since September.
160,000 Jobs
Equities fell today as service industries grew at a slower pace than projected in April, a sign the largest part of the economy may struggle to accelerate. The report overshadowed data showing that jobless claims fell to 365,000 in the week ended April 28, a one-month low. The Labor Department may say tomorrow that the U.S. added 160,000 jobs in April, compared with a gain of 120,000 the previous month, according to a Bloomberg survey.
“The jobless claims are good,” Philip Orlando, the New York-based chief equity strategist at Federated Investors Inc., which oversees about $370 billion, said in a phone interview. “This gives us the read-through that May’s jobs numbers are likely going to be better. Yet tomorrow’s report will probably still be consistent with this temporary soft patch.”
Concern about growth also intensified after European Central Bank President Mario Draghi said the economic outlook has worsened, adding that policy makers didn’t discuss cutting the benchmark rate below its current record low of 1 percent.
Earnings Season
Today’s decline pared the 2012 rally in the S&P 500 (SPX) to 11 percent. Investors bought stocks this year on better-than- estimated profits. About 71 percent of S&P 500 companies that reported results since the start of the earnings season have beaten projections, according to data compiled by Bloomberg.
Eight out of 10 groups in the S&P 500 retreated today as commodity shares slumped at least 1.1 percent. The Morgan Stanley Cyclical Index of companies most-tied to the economy slid 1.5 percent. Alcoa dropped 1.5 percent to $9.58. Hewlett- Packard decreased 3.1 percent, the most in the Dow average, to $24.48. Bank of America Corp. (BAC) lost 2 percent to $8.
GM sank 2.4 percent to $22.37. Profit at the largest automaker was affected by widening losses in Europe. The results resemble Ford Motor Co. (F)’s profit as North American income was countered by losses in Europe, as well as a higher tax rate.
Green Mountain plunged 48 percent, the biggest decline ever, to $25.87. It’s seeing more competition from private-label capsules that fit into Keurig machines and from Starbucks Corp. (SBUX), which plans to sell its own single-serve brewer later this year. The company has introduced the Vue coffee machine to help combat rivals when the main patents for its K-Cups expire in September.
Retailers Slump
Retailers in the S&P 500 lost 0.9 percent after companies including Target and Macy’s Inc. (M) posted April same-store sales that trailed analysts’ estimates as an earlier Easter holiday pulled sales into March and cooler weather cut mall traffic.
Target, the second-biggest U.S. discount chain, slid 2.5 percent to $56.55. Macy’s, the second-biggest U.S. department- store chain, rose 0.7 percent to $41.55. Gap Inc. (GPS), the largest U.S. apparel chain, slumped 1.6 percent to $28.67.
Prudential Financial Inc. (PRU) tumbled 10 percent, the most in the S&P 500, to $54.81. The second-biggest U.S. life insurer swung to a first-quarter loss as the value of the company’s derivative contracts fell.
Visa Inc. (V) slid 4.7 percent to $116.41. The world’s biggest payments network disclosed a U.S. antitrust probe into its pricing and strategy for debit-card transactions.
Facebook’s IPO
Facebook Inc. (FB), the most popular social-networking site, is seeking as much as $11.8 billion in its initial public offering, the largest on record for an Internet company. About 337.4 million shares are being sold at $28 to $35 each.
Founded in 2004 and led by 27-year-old Chief Executive Officer Mark Zuckerberg, Facebook has amassed more than 900 million users and reported a 24-fold increase in sales over the past four years. The company’s popularity as a tool for staying connected online will spur demand for the stock, even as some investors steer clear of a valuation they deem too high, said Francis Gaskins, president of researcher IPOdesktop.com.
“Some people will buy Facebook stock no matter what -- they’ll just buy it,” said Gaskins, who is based in Marina Del Rey, California. “There’s going to be an initial push of enthusiasm and money, but ultimately, in a year or so, it will come down to valuation metrics. It has to.”
Carlyle Group (CG) rose 0.2 percent to $22.05, trimming a gain of 2.1 percent. It raised $671 million by selling 30.5 million shares at $22 each, according to a statement yesterday. The price for Carlyle, which had offered the shares for $23 to $25, represents a 65 percent discount to rival Blackstone (BX) Group LP.
Hard to Predict
In pricing its IPO, Carlyle sought to avoid the fate of Blackstone, Apollo Global Management LLC and other alternative asset managers, whose stocks have tumbled in public trading. Investors have struggled with how to value private equity firms partly because their earnings are hard to predict, with the bulk coming from buyout funds that sell assets at various times.
“Private equity firms in general struggle with initial public offerings mainly because of the way their business is structured, and Carlyle is no different,” said Tom Murphy, a partner in the law firm of McDermott Will & Emery LLP.
Whole Foods Market Inc. (WFM) jumped 7.6 percent to $90.69. The largest U.S. natural-goods grocer posted profit that topped analysts’ estimates on increased demand for organic foods.
Berkshire Hathaway Inc. (BRK/A) shareholders missed out on better returns from the S&P 500 by sticking with Chairman Warren Buffett after each of his last three annual meetings.
2012 Gathering
Berkshire fell 2.4 percent from the firm’s April 30, 2011, meeting through yesterday, compared with the 2.8 percent advance in the S&P 500. This year’s gathering, planned for May 5 in Omaha, Nebraska, concludes three years in which Berkshire climbed about 32 percent, trailing the S&P 500’s gain of around 60 percent.
Buffett, 81, is seeking to reassure investors that the $200 billion company he built over 42 years as chief executive officer is positioned to thrive after his eventual departure. Growth slowed in the last 15 years as Buffett, a former hedge fund manager, directed Berkshire’s earnings toward takeovers in industries like machine tools, power production and railroads.
“They’re very steady, but they’re not necessarily fast growers,” Cliff Gallant, an analyst at KBW Inc., said about Berkshire operating units. A “lack of clarity” about Buffett’s successor may also be weighing on the stock, Gallant said. He rates Berkshire “outperform.”
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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