U.S. Stocks Decline on Economic Reports, Greece Aid Concerns

May 26, 2011, 12:24 PM EDT By Rita Nazareth

May 26 (Bloomberg) -- U.S. stocks declined for the fourth time in five days as reports showed the economy expanded at a slower rate than forecast and jobless claims unexpectedly rose, while concern grew about Europe’s debt crisis.

Dow Chemical Co., the largest U.S. chemical maker, slumped 1.4 percent, pacing declines in raw material producers as commodities fell on concern about lower demand. Walgreen Co. dropped 1.6 percent after Goldman Sachs Group Inc. cut the largest U.S. drugstore chain from its “conviction buy” list. Big Lots Inc. declined 2 percent as the discount retailer forecast earnings that fell short of analysts’ estimates.

The Standard & Poor’s 500 Index lost 0.1 percent to 1,318.57 at 12 p.m. in New York. The Dow Jones Industrial Average fell 37.92 points, or 0.3 percent, to 12,356.74. Both benchmark gauges yesterday snapped a three-day drop.

“We’ve leveled off and softened somewhat,” said Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $53 billion. “We’ve begun to see more moderating growth. We’re not seeing a significant deterioration or acceleration in economic data. Unless we see get some resolve to the European situation, unless we get some settlement with regards to our fiscal issues here, I don’t see any imminent catalysts to power up equity prices.”

Europe Crisis

The S&P 500 fell 3.2 percent from an almost three-year high on April 29 through yesterday amid concern about Europe’s debt crisis and weaker-than-forecast economic data. Still, the benchmark gauge rose 5 percent from the end of 2010 through yesterday on government stimulus measures and higher-than- forecast corporate profits.

The U.S. economy grew at a 1.8 percent annual rate in the first quarter, less than forecast, reflecting a smaller gain in consumer spending than previously calculated. The revised rise in gross domestic product was the same as estimated last month and compared with a 3.1 percent gain in the prior quarter, Commerce Department figures showed. The median forecast of economists surveyed by Bloomberg News called for a 2.2 percent increase.

More Americans unexpectedly filed applications for unemployment benefits last week, a sign the labor market is struggling to gain momentum. Jobless claims increased by 10,000 to 424,000, Labor Department figures showed. The median estimate of economists was for a drop to 404,000.

Aid Payment

Stocks extended declines after Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said the International Monetary Fund may not release its portion of a 12 billion-euro ($17 billion) aid payment to Greece next month.

“There are specific IMF rules and one of those rules says that IMF can only take action when the refinancing guarantee is given over 12 months,” Juncker said today at a conference in Luxembourg. “I don’t think that the troika will come to the conclusion that this is given,” he said.

A gauge of raw material shares in the S&P 500 fell 0.4 percent. The Thomson Reuters/Jefferies CRB Index of 19 raw materials slumped 0.4 percent. Dow Chemical slid 1.4 percent $35.68.

Walgreen slumped 1.6 percent to $43.44. The stock is still a “buy” at Goldman Sachs.

Big Lots Slump

Big Lots declined 2 percent to $31.70. The discount retailer forecast second-quarter earnings of 38 cents to 48 cents a share, falling short of the average analyst estimate of 52 cents, according to Bloomberg data.

Computer Sciences Corp. lost 15 percent, the most in the S&P 500, to $37.59. The provider of computer services to companies and U.S. government agencies said profit for fiscal 2012 will be as much as $4.80 a share. Analysts projected $5.07, according to the average of estimates compiled by Bloomberg.

Goldman Sachs Group Inc. lowered its year-end forecast for the Standard & Poor’s 500 Index to 1,450 from 1,500 and reduced its 2012 earnings projection, citing weakening economic estimates. S&P 500 companies will post combined profit of $104 a share next year, compared with Goldman Sachs’s prior estimate of $106, according to David Kostin, the New York-based equity strategist. He maintained his 2011 earnings forecast for the S&P 500 of $96 a share.

“Our adjustments reflect a combination of developments including recently lowered GDP growth estimates by our economists in the U.S. and Asia and a significant increase in our Brent oil price forecast,” Kostin wrote today in a note to clients.

Microsoft Rallies

Microsoft Corp. rose the most in the Dow, adding 2.7 percent to $24.85. Shares of the world’s biggest software maker are “statistically” cheap, Mario Gabelli, chairman of Gamco Investors Inc., said in an interview on Bloomberg TV. Separately, Greenlight Capital Inc. President David Einhorn called for Microsoft’s board to replace Chief Executive Officer Steve Ballmer, saying the company suffers from “Charlie Brown management.”

Tiffany & Co. increased 9.5 percent to $76.66, the biggest gain in the S&P 500 Index. The world’s second-largest luxury jewelry retailer posted first-quarter profit that beat analysts’ estimates and raised its full-year forecast as sales did better in Japan than expected after the earthquake.

NetApp Inc. rose 7.4 percent to $55.54. The data-management company forecast adjusted earnings of as much as 57 cents a share for the first quarter, compared with the average estimate of analysts surveyed by Bloomberg of 50 cents a share.

Dividend Payers Outperform

Companies in the S&P 500 that raised dividends for at least 25 years are beating the benchmark gauge, reversing a trend started in August when the Federal Reserve signaled additional economic stimulus.

The S&P 500 Dividend Aristocrats Index is again beating the S&P 500 after an almost six-month period of underperformance. Since the middle of February, the index of dividend payers rose 3.1 percent through yesterday and the S&P 500 fell 0.9 percent. The ratio between the two gauges rebounded to 0.41 from a one- year low of 0.39 on Feb. 14. It had fallen from a record of 0.42 on Aug. 26 through mid-February. During that period, the “aristocrats” surged 18 percent as a group, trailing a 27 percent gain for the S&P 500.

“Once the Fed signaled QE2, we had a resumption of the risk rally,” said Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc., which oversees $3.65 trillion as the world’s largest asset manager. “Now that we’re coming to an end of QE2 and there’s concern about a slower pace of economic growth, investors are turning more defensive. These more stable, higher- dividend paying companies are the beneficiaries of that.”

--Editors: Joanna Ossinger, Michael Regan

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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