U.S. Markets Wrap: Stocks Drop on Economic Data; Bonds Fall

By Matt Townsend and Fabio Alves

Aug. 5 (Bloomberg) -- U.S. stocks fell, dragging the Standard & Poor’s 500 Index down from a nine-month high, after reports on job losses and service industries were worse than economists estimated. Treasuries and the dollar also declined.

Procter & Gamble Co. slid 2.8 percent after profit fell on lower sales of higher-priced skin care products and detergents. Electronic Arts Inc. sank 6.8 percent after reporting a quarterly loss. Declines were limited as financial shares rallied after mortgage insurer Radian Group Inc. posted better- than-estimated results and commodity producers gained as aluminum and copper rose to the highest in at least nine months.

The S&P 500 fell for the first time in five days, slipping 0.3 percent to 1,002.72 at 4:07 p.m. in New York. The gauge climbed yesterday to 0.1 point below its close on Nov. 4, the day President Barack Obama was elected. The Dow Jones Industrial Average dropped 39.22 points, or 0.4 percent, to 9,280.97.

“Data is less bad, but it’s still going to be weak,” said Tim Hartzell, who manages $300 million as chief investment officer for Houston-based Sequent Asset Management. “The talk is all about the smaller companies that are now into that next phase of downsizing. That’s what we have to go through. There’s going to be some smaller and midsize companies that have to go out of business to reduce capacity.”

Yesterday’s advance pushed the valuation of the S&P 500 to about 17.5 times its companies’ earnings over the past 12 months, the highest level since May 2008, according to daily data compiled by Bloomberg.

Historic Rally

Since reaching a 12-year low of 676.53 on March 9, the S&P 500 has rebounded 48 percent, the steepest rally over the same number of days since the Great Depression. The S&P 500’s 14-day relative strength index, a measure of momentum, rose to almost 76 yesterday for its highest level since October 2006. An RSI above 70 is typically a sell signal to technical analysts.

Benchmark indexes opened lower after data from ADP Employer Services showed companies cut 371,000 workers from payrolls in July, more than the average estimate of 350,000 in a Bloomberg survey of economists. The figures from the world’s largest payroll processor have shown declines in employment since February 2008. The number of lost jobs has dropped each month since April and fell in July from 463,000 in June.

“I don’t think the lessening of the recession will carry weight much longer,” said Ron Kiddoo, who oversees $500 million as chief investment officer for Cozad Asset Management Inc., based in Champaign, Illinois. “It helped for the past few months, but it’s not going help forever.”

Equities extended losses as the Institute for Supply Management’s index of non-manufacturing businesses, which make up almost 90 percent of the economy, fell to 46.4 from 47 in June. Fifty is the dividing line between growth and contraction.

P&G Slumps

Procter & Gamble lost 2.8 percent to $53.91, leading a measure of consumer-staples companies in the S&P 500 down 1 percent for its biggest decline in a month, after saying fourth- quarter net income dropped 18 percent to $2.47 billion.

Electronic Arts, the world’s second-largest video-game publisher, sank 6.8 percent to $20.40. EBay Inc. dropped 1.1 percent to $21.61 as gauge of S&P 500 technology companies lost 0.9 percent.

Emerson Electric Co. fell 3.6 percent to $34.83 as industrial shares in the S&P 500 snapped a four day streak of gains. The maker of electronic products was cut to “neutral” from “buy” at FTN Equity Capital Markets Corp., which said fiscal year 2010 earnings may continue to be hurt by lower volumes.

Bond Drop

Treasuries declined for a third day after the U.S. announced it will sell a record $75 billion of notes and bonds at next week’s auctions and Goldman Sachs Group Inc. boosted its forecast for U.S. economic growth.

The yield on the 10-year note rose seven basis points, or 0.07 percentage point, to 3.76 percent at 4:16 p.m. in New York, according to BGCantor Market Data. The 3.125 percent security maturing in May 2019 fell 18/32, or $5.63 per $1,000 face amount, to 94 27/32.

Thirty-year bond yields touched their highest levels in a week as the government signaled it’s considering the introduction of 30-year Treasury Inflation Protected Securities and ending 20-year TIPS as it finances unprecedented budget deficits. Goldman Sachs, one of the 18 primary dealers that trade with the Federal Reserve, said GDP will grow at an annual rate of 3 percent in the second half of 2009, an increase over its previous forecast of 1 percent growth.

The dollar traded at $1.4423 per euro, compared with $1.4408. It touched $1.4447, the weakest level since Dec. 18.

The Dollar Index, which tracks the U.S. currency against six major counterparts, fell 0.3 percent to 77.745.

Crude oil futures expiring next month rose 0.8 percent to $71.97 a barrel on the New York Mercantile Exchange, the highest settlement since June 27.

A U.S. government report showed that fuel demand climbed 3.1 percent to 19.3 million barrels a day last week, the highest since the week ended Feb. 27. Supplies of distillate fuel, a category that includes heating oil and diesel, fell 1.14 million barrels to 161.5 million.