U.S. Stocks Drop on Concern Over Job Losses

U.S. Stocks Drop on Concern Over Job Losses, Earnings Valuation

June 3 (Bloomberg) -- U.S. stocks fell for the first time in five days, extending a worldwide slump, as a report showed employers cut more jobs than forecast and the Standard & Poor’s 500 Index traded at the most expensive in eight months.

Aetna Inc., the third-largest U.S. health insurer, dropped 7 percent on a reduced 2009 earnings outlook. Valero Energy Corp. tumbled 17 percent after forecasting a second-quarter loss and saying it will sell shares. Russia’s benchmark equity index slid 7.6 percent to lead a decline in global equities after the MSCI World Index’s valuation reached a five-year high. Oil fell, while Treasuries and the dollar rose.

The S&P 500, which closed at a seven-month high yesterday, dropped 1.2 percent to 933.75 at 11:27 a.m. in New York. The Dow Jones Industrial Average fell 68.81 points, or 0.8 percent, to 8,672.06. Yesterday, the Dow briefly erased its 2009 loss for the first time since January.

“We’ve had a very strong move in a very short period of time and the economy certainly isn’t green-shooting in a way that justifies a lot of optimism,” said Michael Holland, chairman of New York-based Holland & Co. LLC, which oversees about $4 billion.

The S&P 500 was priced at 15.5 times the earnings of its companies at the start of trading today, the most expensive level since October, after rising for three straight months. Still, that’s lower than the average 19.8 monthly valuation over the past decade.

Jobs Concern

Economic data today showing deeper U.S. job losses and a worse-than-estimated contraction in service industries dragged stock indexes lower. Companies in the U.S. cut an estimated 532,000 workers in May, according to a private report. A government release showed factory orders grew less than expected, while the Institute for Supply Management said its index of service industries was 44 last month, missing economists’ estimates.

The Labor Department’s monthly jobs report, scheduled for June 5, may show payrolls at companies and government agencies shrank by 520,000 in May and unemployment rose to a 25-year high of 9.2 percent, based on a Bloomberg survey of economists.

All 10 industries in the S&P 500 retreated as Federal Reserve Chairman Ben S. Bernanke told lawmakers that large U.S. budget deficits threaten financial stability and the government can’t continue indefinitely to borrow at the current rate to finance the shortfall.

‘Fiscal Balance’

“Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth,” Bernanke said. “Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance.”

Aetna slumped 7 percent to $25.35. High medical costs for enrolled health plan subscribers forced the insurer to reduce its 2009 earnings forecast for operating profit to a range of $3.55 a share to $3.70 a share, from an earlier projected range of $3.85 to $3.95 a share, according to a company statement..

Valero fell the most in the S&P 500, dropping 17 percent to $18.64. The largest U.S. refiner said it expects a second- quarter net loss of 50 cents a share and it plans to sell 40 million shares.

Halliburton Co., Sunoco Inc. and Marathon Oil Corp. slid more than 4.4 percent as oil declined for a second day, losing as much as 3 percent to $66.52 a barrel on the New York Mercantile Exchange. A group of S&P 500 pipeline builders, oil drillers and exploration companies slumped 2.8 percent for the steepest drop among the 10 industries in the S&P 500.

Risks ‘Quite Symmetrical’

“The downside and upside risks to equities are now quite symmetrical,” Andrew Garthwaite, an equity strategist for Credit Suisse Group, wrote in a report. He downgraded his stance on U.S. stocks to “market weight” from “overweight” on concern companies are issuing too many shares and the economy may remain weak.

Dish Network Corp., the second-largest U.S. satellite- television provider, retreated 8 percent to $15.86. A judge told the company and EchoStar Corp. to pay TiVo Inc. $192.7 million in damages and interest because their software infringes a patent and to cease selling the service to customers. TiVo surged 46 percent, the biggest gain in four years, to $10.20.

NYSE Euronext Chief Executive Officer Duncan Niederauer said he’s “a lot more confident” the three-month rally in equities is sustainable as trading volume increases. Trading volume in April and May was “quite steady, quite good,” he told Bloomberg News in an interview from Amsterdam.

The S&P 500 has surged 38 percent from a 12-year low on March 9 as the biggest U.S. banks said they were profitable last quarter, President Barack Obama outlined a $787 billion plan to revive the economy and the Treasury unveiled plans to finance as much as $1 trillion in purchases of lenders’ troubled assets.

Treasuries, Dollar Gain

Treasuries rose for a second day, pushing yield on 10-year note down three basis points, or 0.03 percentage point, to 3.58 percent. The dollar rose versus the euro for the first time in five days.

Bill Gross, founder of Pacific Investment Management Co., advised holders of U.S. dollars to diversify before central banks and sovereign wealth funds ultimately do the same amid concern about surging deficits.

The U.S.’s “fortune-producing capabilities seem to be declining, which might suggest that its relative standard of living is doing so as well,” Gross wrote in his June investment outlook posted today on the Newport Beach, California-based firm’s Web site. “If so, the implications are serious.”