14-Jan-2012 - US Stocks Slump

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By JONATHAN CHENG U.S. stocks tumbled as fears of a credit downgrade of several euro-zone countries added to disappointing results from J.P. Morgan Chase. The Dow Jones Industrial Average fell 134 points, or 1.1%, to 12335 in morning trading. The Standard & Poor's 500-stock index dropped 15 points, or 1.2%, to 1280 while the Nasdaq Composite declined 30 points, or 1.1%, to 2695. The declines came after Dow Jones Newswires reported that credit-rating firm Standard & Poor's could downgrade several euro-zone countries as soon as today, citing European Union sources. S&P declined comment. The headlines sent the euro sharply lower. After gaining against the dollar, the common currency reversed course, shedding 1.3% to trade at 1.2649. European stocks also gave up earlier gains to trade in negative territory. "We've had a nice rally and we're trading off a five-month high," said Kent Engelke, chief economic strategist at Capitol Securities Management, as he pointed to the Martin Luther King, Jr. Day holiday in the U.S. on Monday. "We have a three-day weekend up ahead. Who wants to take a risk?" While the stock-market reaction was immediate, Mr. Engelke argued that the bond market, which responded only tepidly to the downgrade headlines, had already been expecting a credit downgrade. "Whether NFL jerseys some euro-zone countries get downgraded has already been discounted by the market, looking at where their debt is trading. Downgrades are a lagging indicator, not a leading indicator." The downgrade concerns added to a cautious investor outlook after a string of steady stock gains this week, and comes after J.P. Morgan's revenue disappointment earlier Friday. Shares of the blue-chip financial giant dropped 3.8% after reporting fourth-quarter revenue that fell short of expectations; earnings declined but matched forecasts. J.P. Morgan's investment-banking unit posting a profit slide of 52% from last year and a revenue decline of 30%. The company also said returns on tangible common equity during the quarter were disappointing. Bank of America was also weak, shedding 3.7% after the Wall Street Journal reported that the bank was willing to retreat from some parts of the country if its financial problems deepen. The declines at the two banks weighed on financial stocks. Industrial and materials NFL shop jerseys stocks were also weaker. Alcoa lost 2.4% and United Technologies gave up 1.5%. If U.S. stocks finish lower, it would snap a week-long run of modest gains that has seen the Nasdaq Composite finish with gains for six consecutive days. Over that stretch, however, the Nasdaq added just 2.9%. On Thursday, the Dow rose 22 points, or 0.2%, to its highest close in nearly six months. European markets turned lower after the S&P downgrade fears hit the headlines, clouding a day that was marked by optimism over lower Italian bond yields and strong euro-zone trade data. The Stoxx Europe 600, which rose as much as 0.7% earlier in the European trading session, fell 0.7%. An Italian auction of Treasury bonds maturing in 2014 and 2018 met the high end of its target range. Elsewhere, data showed that the euro zone had a trade surplus of €6.9 billion (8.8 billion) in November compared with expectations for a slight deficit. Asian bourses finished mostly higher, with Japan's Nikkei Stock Average rising 1.4% and South Korea's Kospi Composite gaining 0.6%, but China's Shanghai Composite fell 1.3% to post a third-straight loss. Gold futures eased to about 1,635 an ounce, while crude-oil futures fell to about 98.30 a barrel. In addition to the U.S. dollar's strong gains against the euro, the greenback also rose against the yen. Treasurys gained, football jerseys sending the yield on the benchmark 10-year note down to 1.8543%. In economic data, the Commerce Department said Friday that the U.S. trade deficit widened for the first time in five months in November, as exports to the euro area slumped. The U.S. deficit jumped 10.4%, the biggest gain since May, to 47.75 billion. Import prices, meantime, edged lower by 0.1% in December, continuing the slowing trend seen in the second half of 2011. Separately, a preliminary reading on consumer sentiment in January showed confidence rising to an eight-month high. In other corporate news, Diamond Foods slumped 9.4% after The Wall Street Journal reported that federal prosecutors opened an inquiry into whether the snack food company's financial practices involved criminal fraud, a development that could jeopardize the company's proposed acquisition of Pringles from Procter & Gamble. Metabolix tumbled 56% after the company said Archer Daniels Midland has given notice that it was terminating the Telles joint venture. Metabolix is conducting a strategic review of its business priorities for 2012. Write to Jonathan Cheng at jonathan.cheng@dowjones.com

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