U.S. Stocks Decline as Fed Reduces Growth Estimates

By Rita Nazareth - Jun 21, 2012 4:10 AM GMT+0700

U.S. stocks dropped, following a four-day gain in the Standard & Poor’s 500 Index, as the Federal Reserve cut its estimates for growth amid a slowdown in hiring.

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A trader works on the floor of the New York Stock Exchange. Photographer: Jin Lee/Bloomberg

Adobe Systems Inc. (ADBE), the largest maker of graphic-design software, declined 2.7 percent after forecasting sales and profit that trailed estimates. Procter & Gamble Co. (PG) tumbled 2.9 percent as the world’s biggest consumer-goods company reduced its earnings and revenue forecasts for the second time in less than two months. JPMorgan Chase & Co. (JPM) rallied 3 percent.

The S&P 500 retreated 0.2 percent to 1,355.69 at 4 p.m. New York time. The Dow Jones Industrial Average decreased 12.94 points, or 0.1 percent, to 12,824.39. Trading volume for exchange-listed stocks in the U.S. was about 6.6 billion shares, or almost in line with the three-month average.

“It’s not all bad news, but caution is warranted,” said Eric Teal, chief investment officer at First Citizens Bancshares Inc., which manages $4.5 billion in Raleigh, North Carolina. He spoke in a telephone interview. “If the Fed saw significant deterioration, the policy response would have been on a larger scale. Yet there’s increased risk to the economic outlook.”

Stocks fell as the central bank cut its estimates for growth and said it sees little progress on unemployment during the rest of the year. The Fed lowered its central tendency estimate for U.S. 2012 gross domestic product growth to 1.9 percent to 2.4 percent from 2.4 percent to 2.9 percent in April.

The Fed will expand its program to replace short-term bonds with longer-term debt by $267 billion through the end of 2012. That “should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative,” the Federal Open Market Committee said.

‘Additional Steps’

“If we don’t see continued improvement in the labor market, we’ll be prepared to take additional steps if appropriate,” Fed Chairman Ben S. Bernanke said at a news conference after the FOMC’s two-day meeting. He said those steps might include additional asset purchases.

Expectations for further policy action gave stocks their first back-to-back weekly gain since April on June 15. The S&P 500 earlier this month was on the brink of a so-called correction, or a 10 percent drop from a recent peak, on concern about a global slowdown and a worsening of Europe’s crisis.

Investors also watched Europe’s latest attempts to tame its debt crisis today. Antonis Samaras, head of Greece’s New Democracy party, was sworn in as prime minister after Greek political leaders agreed on a coalition that will seek relief from austerity measures tied to international loans.

Lehman-Like

European policy makers are unlikely to solve the region’s problem unless they have a crisis “moment” like Lehman Brothers Holdings Inc.’s bankruptcy, said Gary D. Cohn, Goldman Sachs Group Inc.’s president and chief operating officer.

“My personal view is we’re going to need a moment” because the issues are political, Cohn, said in an interview with Erik Schatzker on Bloomberg Television’s “Market Makers.”

Eight out of 10 groups in the S&P 500 fell today as utility and consumer staples companies had the biggest losses. Technology and financial shares advanced.

Adobe slumped 2.7 percent to $31.99. It reduced the high end of its annual sales growth forecast range to 7 percent from 8 percent, which is “anemic” for a technology company, said Barbara Coffey, an analyst with National Securities.

P&G lost 2.9 percent to $60.39. The reduced forecasts illustrate the difficulties faced by consumer-products makers as rising unemployment in Europe and North America restricts spending. Danone, the world’s biggest yogurt maker, cut its profitability forecast yesterday. Europe is “difficult for everybody,” Jean-Marc Huet, chief financial officer of Unilever, said at the Paris conference yesterday.

Walgreen Slumps

Walgreen Co. (WAG) retreated 2.9 percent to $29.21. The biggest U.S. drugstore chain was downgraded to neutral from outperform at Macquarie Group Ltd. by equity analyst Dane Leone. The 12- month share-price estimate is $34.

JPMorgan gained 3 percent to $36.45. Trading in the credit derivatives index that contributed to the bank’s losses in its London chief investment office soared to a record yesterday in a sign that the biggest U.S. bank may be unwinding its position, according to data cited by Credit Suisse Group AG.

The lender is seeking to stem at least $2 billion in trading losses from the U.K. operation, where Bruno Iksil, known as the London Whale, managed a portfolio of credit derivatives so large it distorted the market.

A strategy by the unit to reduce risks from hedges backfired and left the bank with even bigger and harder-to- manage exposures, Chief Executive Officer Jamie Dimon said last week. JPMorgan has sold 65 to 70 percent of its losing position and is still selling the rest, CNBC reported.

Airlines Rally

The Bloomberg U.S. Airlines Index advanced 2.3 percent as oil dropped to an eight-month low after the Energy Department reported that U.S. crude inventories climbed to the highest level in 22 years.

Cisco Systems Inc. (CSCO) rallied 1.9 percent to $17.51. The biggest maker of computer-networking equipment was raised to outperform from market perform at BMO Capital Markets.

Applied Materials Inc. (AMAT) gained 3.4 percent to $11.55. The largest producer of chipmaking equipment was raised to overweight at Barclays Plc.

Tesla Motors Inc. (TSLA) jumped 5.3 percent to $33.78 as the electric-car maker prepares to begin deliveries of Model S sedans and Goldman Sachs raised its price target for the shares.

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