U.S. stocks declined, after a two- week gain in the Standard & Poor’s 500 Index, as Moody’s Investors Service will review the ratings of all European Union countries and Intel Corp. (INTC) cut its revenue forecast.
Intel, the world’s largest chipmaker, tumbled 4 percent. Morgan Stanley and Citigroup Inc. (C) dropped at least 4.2 percent, following a tumble in European lenders. Schlumberger Ltd. (SLB), Newmont Mining Corp. (NEM) and Freeport-McMoRan Copper & Gold Inc. (FCX) slumped more than 2.6 percent as commodities declined.
The S&P 500 slid 1.2 percent to 1,240 at 9:42 a.m. New York time. The benchmark gauge for U.S. equities rose 8.3 percent over the previous two weeks. The Dow Jones Industrial Average fell 115.80 points, or 1 percent, to 12,068.46 today.
“This is not heaven,” Stanley Nabi, New York-based vice chairman of Silvercrest Asset Management Group, which oversees $10.5 billion, said in a telephone interview. “The European stopgap may not be successfully implemented. In order for this program to be successful, there’s going to have to be a lot of belt tightening. That means that the European economy is not going to do well at all. That would have negative impact on other countries around the globe.”
Stocks rose last week as European leaders agreed to boost a rescue fund and reports spurred optimism about the U.S. economy. A gauge of financial shares in the S&P 500 (SPXL1) had the biggest gain among 10 groups this month through Dec. 9, adding 2.1 percent. The industry led the losses in the index this year.
Global Slump
Equity futures joined a global slump today as Moody’s said that last week’s EU summit failed to produce “decisive policy measures” to end the region’s crisis. Bundesbank President Jens Weidmann told the Frankfurter Allgemeine Sonntagszeitung that while the new fiscal accord represents “progress,” the onus is on governments rather than the European Central Bank to resolve the crisis with financial backing.
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Outlook for Euro Darkens on Summit, ECB Policy
Foreign-exchange strategists are reducing their forecasts for the euro at the fastest pace this year as European Central Bank President Mario Draghi’s interest- rate cuts remove one of the currency’s pillars of support.
Since Nov. 3, when Draghi began to undo the rate increases implemented earlier this year by his predecessor, Jean-Claude Trichet, analysts have cut end-of-2012 estimates for the euro to $1.32 from $1.40, based on the median of 40 forecasts in a Bloomberg survey as of last week. It has weakened versus every major currency except the Swiss franc since then, after gaining against 12 of the 16 this year prior to that.
Investors are fleeing assets denominated in the 17-nation currency as European Union leaders fail to end concern that Italy and Spain will succumb to a sovereign-debt crisis that forced Greece, Ireland and Portugal to seek bailouts. While euro bulls say sentiment is so negative that the currency has nowhere to go but up, bears point to surveys showing the euro zone’s economy will expand 0.5 percent next year, compared with 2.19 percent for the U.S.
“There still has to be further monetary easing by the ECB to support growth in the euro area for 2012 and beyond,” Ken Dickson, investment director of currencies at Standard Life Investments in Edinburgh, which manages about $235 billion, said in a Dec. 9 telephone interview. “There’ll be further weakness, particularly in the first half of next year,” which may push the currency to as low as $1.20 from $1.3386 last week, he said.
Relative Rates
For much of this year, relatively high interest rates gave international investors an incentive to hold European fixed- income assets even as the threat of more bailouts rose.
