Stock Market -- S&P 500

U.S. stocks Plunge On Europe as S&P 500 Loses Most in 13 Months

-- U.S. stocks plunged, with the Standard & Poor’s 500 Index losing the most in 13 months, after jobless claims increased and concern grew that Europe’s debt crisis is spreading.

Caterpillar Inc. helped lead industrial shares lower. General Electric Co. dropped 5.8 percent as all 30 stocks in the Dow Jones Industrial Average retreated. ConocoPhillips and Exxon Mobil Corp. retreated with oil prices. The decline in stocks deepened after the June futures contract on the Standard & Poor’s 500 Index slipped below levels monitored by traders who base investments on chart patterns.

The S&P 500 slid 3.9 percent to 1,071.59 as of 4 p.m. in New York, closing below its 200-day average for the first time since July 2009. It was the benchmark’s biggest drop since April 2009. The Dow lost 376.36 points, or 3.6 percent, to 10,068.01. The Nasdaq Composite Index joined the S&P 500 and Dow in erasing its gains for 2010, declining 4.1 percent to 2,204.01.

“There are a lot of well-known negatives or obstacles to a speedy recovery, specifically in the U.S. economy and even the developed markets around the world,” said Charles Stamey, who helps manage $30 billion at Manning & Napier Advisors Inc. in St. Petersburg, Florida. “Earlier this year, everyone was assuming that the modest economic improvements were going to continue. It’s almost as if the market overshot itself.”

Jobless Claims

The decline accelerated after the index fell beneath its average for the last 200 days, which it had breached yesterday before paring losses. Technical analysts have also said a level of about 1,100 represents a point at which selling may worsen for both the S&P 500 and the June contract, said Mary Ann Bartels, head of U.S. technical analysis at Bank of America Corp.’s Merrill Lynch unit, in a note.

“This is not a typical retracement,” said Mohamed A. El- Erian, chief executive officer of Pacific Investment Management Co., which runs the world’s biggest bond fund, in an e-mail. “We are in uncharted waters on account of several issues, including what is going on in Europe and other important structural regime changes. In economic terms, European developments are unambiguously bad for global growth.”

A Drop from 2010 Highs

The major indexes ended at the days’ lows. The S&P 500 has now fallen 12 percent from its 2010 high on April 23 of 1,217.28. All 30 Dow stocks were down more than 2.2 percent, while all but three of the S&P 500 companies declined. The ratio of securities that advanced to those that declined on the New York Stock Exchange and Nasdaq Stock Market reached its lowest level since at least July 2004, according to data compiled by Bloomberg. About 20 stocks fell for each that rose on those exchanges.

“The last 30 minutes of the day were highlighted by analyst after analyst calling for being in cash,” said Larry Peruzzi, senior equity trader at Cabrera Capital Markets in Boston. “This market is trading 95 percent on fear and 5 percent on fundamentals. What we also saw was the last few pockets of year- to-date gains see profit-taking. That moved all 30 Dow stocks negative.”

Erasing 2010 Gains

U.S. stocks fell for a second day yesterday, wiping out the 2010 gain for the S&P 500, as Germany’s ban on some bearish investments and a jump in mortgage foreclosures triggered a flight from equities. France, The Netherlands and Finland said they have no plans to follow German Chancellor Angela Merkel’s effort to control what she called “destructive” markets.

The euro fell as much as 1 percent to $1.2297, and in the morning was near the four-year low it reached yesterday before paring the losses. It rose 0.8 percent to $1.2513 at 4 p.m. in New York.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, climbed 29 percent, or 10.25 points, to 45.57. That level is nearly triple the 2010 low of 15.58 on April 12 for the benchmark U.S. stock-options index.

“It’s just a complete lack of clarity for what the plan is for Europe,” said Dan Veru, who helps oversee $3.1 billion as co-chief investment officer at Palisade Capital Management in Fort Lee, New Jersey. “We now have a big amount of uncertainty with that and with the overall economy. A lot of people have been waiting for this move downward in the market this is as good as any to sell.”

Exxon, Spectra

Exxon, the world’s largest oil company, dropped 3.4 percent to $60.33, while ConocoPhillips, the third-biggest U.S. energy company, lost 4.4 percent to $51.04. Crude oil for June delivery fell 2.3 percent to $68.28 in New York after declining below $65 earlier in the session.

Spectra Energy Corp., the third-largest U.S. pipeline operator by market value, slumped the second-most in the S&P 500 after Jefferies & Co. cut the stock “underperform” from “hold.” The shares fell 8.2 percent to $19.37.

Caterpillar dropped 4.5 percent to $58.67, contributing to a 4.6 percent decline among industrial companies in the S&P 500. The world’s largest maker of construction equipment said its global retail sales of machines fell 4 percent last month.

Materials Producers Slide

All 10 S&P 500 industry groups each lost at least 2.7 percent. Materials producers slid 4.4 percent as gold, aluminum, copper, lead and nickel all declined. Alcoa Inc. fell 6 percent to $11.07. The group is down the most for the month of May.

Sears Holdings Corp. reported first-quarter revenue that missed the average analysts estimate, according to a Bloomberg survey. Shares of the largest U.S. department-store chain fell 11 percent to $88.70, the most in the S&P 500.

Rockwell Automation Inc. also slid, falling 8 percent to $52.16 after JPMorgan Chase & Co. cut the maker of factory software to “neutral” from “overweight.”

Stocks extended earlier declines after the Conference Board’s measure of the economy’s outlook for the next three to six months fell 0.1 percent last month. The median forecast in a Bloomberg survey of economists was for a 0.2 percent gain. The figures follow a 1.4 percent gain in March that was the most since a similar rise in May 2009.

Japanese Economy

In Japan, the economy grew less than forecast in the first quarter as an export-led recovery failed to stoke consumer spending. Gross domestic product rose an annualized 4.9 percent, less than the 5.5 percent median forecast in a Bloomberg survey of 21 economists, a Cabinet Office report showed.

The U.S. Senate agreed today to move toward a final vote on the financial-regulation bill that overhauls Wall Street oversight, including strengthened regulation of hedge funds and derivatives. The procedural vote count was 60-40 today, after the Democrats failed yesterday to get the minimum 60 needed.

The Dow Jones Transportation Average, whose 20 companies include FedEx Corp., Union Pacific Corp. and Ryder System Inc., joined the industrials gauge in falling below its May 7 closing level, signaling to followers of Dow Theory that losses are likely to deepen.

Stemming from observations made by Wall Street Journal founder Charles Dow during the late 1800s, Dow Theory holds that moves by the industrial average must be “confirmed” by the transportation measure, and vice versa, to be sustained.

‘Severe Downside Action’

“If the May 7 lows are violated by the industrials and the transports, I expect some severe downside action by the stock market,” Richard Russell, the La Jolla, California-based editor of the Dow Theory Forecasts newsletter, wrote to subscribers yesterday.

The drop below the S&P 500’s 200-day moving average may not necessarily signal more losses to come, according to Harrison, New York-based Bespoke Investment Group LLC.

The last time the index closed below the level was in July 2009. On the previous occasions when it closed below the 200-day moving average after having stayed above it for at least 100 days on a closing basis, the S&P 500 “has actually done well” in the following months, according to Bespoke, with positive returns one, three and six months later.