U.S. stocks drop as S&P 500 posts worst two days in 14 months

6/7/2010

U.S. stocks declined, sending the Standard & Poor's 500 Index to the biggest two-day loss since March 2009, as Google Inc. and Apple Inc. led a drop in technology shares and Goldman Sachs Group Inc. was subpoenaed in the financial-crisis investigation.

Apple lost 2 percent as the introduction of a new iPhone failed to boost the stock. Google sank 2.7 percent as Connecticut demanded information about data collection. Goldman Sachs slid 2.5 percent as the Financial Crisis Inquiry Commission said the bank had not complied with requests for documents. Autodesk Inc. fell 4.4 percent after Goldman Sachs removed the software company from its “conviction buy” list.

The S&P 500 slipped 1.4 percent to 1,050.47, the lowest level since Nov. 4, as of 4 p.m. in New York. The Dow Jones Industrial Average decreased 115.48 points, or 1.2 percent, to 9,816.49. Benchmark indexes rose earlier following growth in German factory orders and toned-down comments from Hungarian officials about a potential default.

“Despite some mildly positive news from Germany and Hungary, there's been a lack of anything too positive to give the market a push and give investors more confidence to step in and do some bargain hunting,” said Richard Sichel, who oversees $1.4 billion as chief investment officer at Philadelphia Trust Co. “The U.S. economy is an attractive place, but our economic recovery is going to be slow.”

‘Significant Headwinds'

U.S. stocks fell last week as lower-than-estimated jobs growth and a worsening government debt crisis in Europe fueled concern the global economic recovery will slow. Janet Yellen, President Barack Obama's pick to be the Federal Reserve's next vice chairman, said in a San Francisco speech today that while there appear to be improvements in the global economy, “significant headwinds to stability remain.”

Benchmark U.S. indexes advanced in early trading after German factory orders unexpectedly jumped for a second month in April as the weaker euro boosted export demand and companies increased investment. Hungary's government pledged to control the budget deficit and make structural changes to overhaul the economy as it further distanced itself from suggestions the country was facing a Greece-like crisis.

“This is a small glimmer of hope that Europe might be doing better,” Malcolm Polley, who oversees $1 billion as chief investment officer at Stewart Capital Advisors in Indiana, Pennsylvania, said of Germany factory orders. “A lot of the issues affecting markets have been coming from Europe, so this is an encouragement.”

Goldman Subpoena

Financial stocks turned lower as the U.S. panel investigating the causes of the financial crisis issued a subpoena to Goldman Sachs after the Wall Street firm failed to hand over documents in a “timely manner.”

The Financial Crisis Inquiry Commission “has made it clear that it is committed to using its subpoena power” if firms under review don't comply with information requests, the panel said in a statement today. Moody's Corp. and Warren Buffett have also received subpoenas from the commission.

Goldman Sachs fell 2.5 percent to $138.68. Citigroup Inc. lost 4 percent to $3.64.

Bank of America Corp. slid 3.4 percent to $14.83 after the Federal Trade Commission announced Countrywide Financial Corp., the mortgage company bought by the biggest U.S. bank by assets in 2008, will pay $108 million to settle U.S. claims it charged excessive fees to struggling home buyers. The Commission described the penalty as one of the largest in the agency's history.

Apple, Google

Apple lost 2 percent to $250.94 after Chief Executive Officer Steve Jobs introduced the iPhone 4 today at the Worldwide Developers Conference in San Francisco. The iPhone is now one of Apple's most important products, raking in more sales than the Macintosh computer last quarter. Apple has sold more than 50 million iPhones in the past three years, accounting for 40 percent of revenue.

“There's usually expectations with Steve Jobs getting up on stage -- and we have a weak environment with light volume and not a lot of investor enthusiasm -- so Apple turned lower after the unveiling of the new iPhone,” said Michael O'Rourke, chief market strategist at BTIG LLC in Yardley, Pennsylvania, which serves institutional investors. “Apple being the second-largest tech company in the S&P means any volatility can have a noticeable influence on the broader indexes.”

Google slipped 2.7 percent to $485.52. Connecticut Attorney General Richard Blumenthal is demanding Google provide his office with information about any data the company collected from the state's residents and businesses without permission.

Information-Gathering

Google has been ordered by a judge in Oregon to turn over similar data there, and is giving data to regulators in Germany, France and Spain. The company said last month it mistakenly gathered information while it was capturing images of streets and houses for its Street View service, a product that lets users view photographs of an area online. Autodesk fell 4.4 percent to $26.69. The shares are still rated “buy” at Goldman Sachs.

Alcoa Inc. declined 3 percent to $10.51 as industrial metals slumped. Freeport-McMoRan Copper & Gold Inc. lost 6.6 percent to $58.66. Copper futures for July delivery fell 5.35 cents, or 1.9 percent, to $2.766 a pound on the Comex in New York, after touching $2.72, the lowest level for a most-active contract since Oct. 5. The metal declined for a sixth straight session, the longest slump since early December.

CVS, Walgreen

CVS Caremark Corp. dropped 8.1 percent to $31.04 for the biggest decline in the S&P 500 after Walgreen Co., the largest U.S. drugstore chain, said it will stop participating as a provider in new or renewed prescription drug plans awarded to CVS's pharmacy benefit manager.

Equities in the U.S. have plunged since April 23, with investors battered by the widening debt crisis in Europe. The S&P 500 fell 13 percent through June 4, led by 17 percent slumps by gauges of energy and commodity producers. Confidence in stocks is sinking to record lows in the options market even with the U.S. economy poised for its fastest growth in six years, a sign to Blackstone Group LP's Byron Wien that it's time to buy.

Contracts that pay off should the benchmark index for U.S. stocks plunge more than 23 percent from its April high cost 75 percent more than those speculating on gains, the biggest premium ever, according to data compiled by Bloomberg and OptionMetrics LLC. The 10-day average difference exceeded 50 percent 34 times since 1996. In those cases, the S&P 500 gained a median 7.2 percent in six months.

No ‘Double Dip'

Templeton Asset Management Ltd.'s Mark Mobius said the global economy will avoid a “double dip” recession and falling stock prices have created buying opportunities in east European countries including Hungary.

“Globally there will not be a double dip,” Mobius, who oversees about $34 billion in emerging markets as Templeton Asset Management's Singapore-based chairman, said in an interview today on Bloomberg Television. In Hungary, “we've seen falls of 20 percent or more and in that kind of scenario there are great opportunities to buy from a longer-range point of view,” Mobius said.

Bristol-Myers Squibb Co. climbed 6.3 percent to $23.86 for the top gain in the S&P 500. The leukemia pill Sprycel worked better at eliminating malignant cells than Novartis AG's Gleevec, the standard treatment, a study found. The drug ipilimumab kept about a quarter of melanoma patients alive for two years --about twice the proportion with current therapies, another trial showed. The shares were raised to “buy” from “neutral” at Goldman Sachs.

Celgene Corp. increased 4.4 percent to $53.82 as it was raised to “buy” from “hold” at Jefferies & Co. Inc. after releasing released studies on its treatments for patients with non-Hodgkin's lymphoma.

National Oilwell Varco Inc. added 1 percent to $35 after the Houston, Texas-based company was raised to “outperform” from “neutral” at Credit Suisse by equity analyst Brad Handler.