U.S. Stocks Fall a Third Week on Europe Concern, Forecast Cuts

May 21, 2011, 12:45 AM EDT By Whitney Kisling

May 21 (Bloomberg) -- U.S. stocks declined for a third straight week, the longest slump since August, as investors grew more concerned that Greece will default on its debt and reduced earnings forecasts undermined confidence in the economy.

Staples Inc. and Gap Inc. led losses in the Standard & Poor’s 500 Index after cutting their profit projections, while Hewlett-Packard Co. plunged 11 percent as it reduced its sales forecast. NYSE Euronext sank 13 percent after Nasdaq OMX Group Inc. said it was dropping a takeover bid for the operator of the New York Stock Exchange. Newfield Exploration Co. and El Paso Corp. led energy stocks to the biggest gain among 10 groups.

The S&P 500 lost 0.3 percent to 1,333.27 this week. The index has fallen every week in May after reaching an almost three-year high at the end of April. The Dow Jones Industrial Average fell 83.71 points, or 0.7 percent, to 12,512.04.

“People are realizing that not only the U.S. but the global economy still faces some issues,” said Malcolm Polley, who oversees $1 billion as chief investment officer at Stewart Capital in Indiana, Pennsylvania. “You’ve still got problems particularly in Greece that aren’t going to go away soon. The market had gotten a little ahead of itself.”

While the S&P 500 is up 6 percent so far in 2011, the benchmark index for U.S. equities has lost 2.2 percent this month. The S&P 500 has only fallen one month so far this year, slipping 0.1 percent in March amid concern that Japan’s earthquake and tsunami would curb global demand.

Staples Plunges

Staples slipped the most in the S&P 500, losing 19 percent $16.37. The office-supply retailer forecast 2011 earnings wouldn’t exceed analysts’ average estimate, according to data compiled by Bloomberg.

Gap, the largest U.S. apparel chain, dropped 17 percent to $19.22 and had the worst daily decline in almost a decade yesterday. The company cut its full-year profit forecast by 22 percent as costs to make clothes rose faster than expected.

NYSE Euronext plunged as smaller competitors Nasdaq OMX and IntercontinentalExchange Inc. withdrew their bid for the New York-based company after the U.S. Department of Justice threatened a lawsuit. The shares lost 13 percent to $35.76.

S&P 500 technology companies slid the most among 10 groups this week, dropping 1.5 percent for the third straight week of losses. Hewlett-Packard, the biggest personal-computer maker, fell the most among technology shares after it cut a billion dollars from its sales forecast for 2011 and missed analysts’ profit projections. The shares slid 11 percent to $35.98.

Chip-Share Downgrade

KLA-Tencor Corp. lost 7.3 percent to $41.20. The semiconductor company, along with Intel Corp. and Applied Materials Inc., was downgraded by Goldman Sachs Group Inc., which cited increased competition from tablet computers and excess supply.

Energy shares in the S&P 500 rose 0.9 percent as a group this week, after losing 8.3 percent in the first two weeks of May. Oil climbed above $100 a barrel on May 18 after an Energy Department report showed an unexpected drop in U.S. inventories as refineries bolstered operating rates and imports declined.

Crude gained again on May 20 after the American Petroleum Institute said fuel consumption increased in April.

Newfield Exploration, an oil and gas producer which operates in the Gulf of Mexico, onshore U.S., Malaysia and China, advanced 6.9 percent. El Paso, which operates natural-gas pipelines, rose 6.4 percent.

Salesforce Rallies

Salesforce.com Inc., the largest supplier of customer- management software, advanced 8.7 percent to $146.61 for the best weekly gain since November. The company, which sells cloud- computing applications that companies rent over the Web rather than install on their computers, forecast fiscal second-quarter sales and profit that topped estimates as the company added 5,400 customers in last quarter.

The S&P 500 started the week lower on May 16 as concern about Europe’s debt crisis was heightened after Greece sought additional bailout funds. European finance chiefs endorsed a 78 billion-euro ($111 billion) bailout for Portugal. Authorities stepped up the pressure on Greece to sell assets and deepen spending cuts to win an increase of its 110 billion-euro aid package and more time to repay the loans.

“Some degree of caution might be in order in the near- term, while we wait for greater clarity on a series of risks in the weeks ahead,” said David Joy, the Boston-based chief market strategist at Ameriprise Financial Inc., which oversees $693 billion in assets. “Recent evidence suggests a bit of softness in the U.S. economy.”

Economic Signals

While a government report showed that fewer Americans than estimated filed applications for unemployment benefits during the previous week, other data showed manufacturing in the New York and Philadelphia regions expanded at a slower-than-forecast pace. Housing starts and existing home sales also unexpectedly decreased.

The S&P 500 was poised to gain for the week after the Federal Reserve signaled continued low interest rates on May 18. Talks about an exit strategy from the record stimulus measures don’t mean monetary tightening “would necessarily begin soon,” according to the Fed’s April policy meeting records, released last week. Gap’s forecast and Fitch’s downgrade of Greece brought the index lower for the week yesterday.

The S&P 500 has climbed 27 percent since Fed Chairman Ben S. Bernanke signaled in August that he would buy more bonds to stimulate the economy. The Fed’s second program of quantitative easing, or QE2, which was officially announced in November, ends in June.

Joy said the approaching end of the Fed’s quantitative easing “raises uncertainty” about its role in the S&P 500’s direction.

--With assistance from Nikolaj Gammeltoft in New York. Editors: Michael Regan, Stephen Kleege

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net

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

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