Stocks drop on Euroope, worrisome economic reports - USA Today Stocks drop on Euroope, worrisome economic reports - USA Today

Thursday, May 17, 2012

Stocks drop on Euroope, worrisome economic reports - USA Today

Stocks drop on Euroope, worrisome economic reports - USA Today

Indexes opened lower on Wall Street following declines in European markets. The declines accelerated at mid-morning after the Federal Reserve Bank of Philadelphia said manufacturing slowed in the mid-Atlantic region for the first time in eight months. New orders decreased and firms cut jobs.

The Labor Department reported that applications for unemployment benefits held steady last week, a sign layoffs are not increasing. But the Conference Board said its measure of future U.S. economic growth fell in April after six months of increases. The drop reflected fewer requests for building permits.

And Caterpillar (CAT) fell 4%, the most of the 30 stocks in the Dow Jones index, after reporting that global sales growth of construction and mining machinery slowed in the three months through April.

The mostly gloomy reports were a surprise and came as investors continued to fret about whether Greece might be forced to exit the euro bloc, something that investors fear would cause turmoil on global markets.

On the bright side, Wal-Mart (WMT) stock rose 5% after reporting a 10% jump in first-quarter income, beating Wall Street expectations. It was a big turnaround for the retailer, which had suffered during the economic downturn as low-income customers were hit hard by joblessness and home foreclosures.

"'The U.S. economy is growing slowly and not going gangbusters," said Brian Gendreau, market strategist at broker-dealer Cetera Financial Group. "But Europe is very much on investors' minds. It's been two years with multiple bailouts involving Ireland, Portugal and Greece and things don't seem to be getting better."

Greece's caretaker Cabinet was sworn in Thursday and will hold power at least until next month's election. In the recently-held elections Greeks didn't given any party a majority, but they did give strong support to politicians who rejected tough austerity measures that came with the country's financial bailout.

Without that rescue package, Greece will likely default and be forced to leave the 17-country euro zone, which would destabilize other countries that use the euro. German, French and Spanish stock markets all fell more than 1%.

Collateral economic damage is already being felt by other members of the euro bloc.

Spain was forced to pay sharply higher interest rates to raise $3.18 billion in a debt auction Thursday. And shares of Bankia, which Spain nationalized last week, plunged 20% on a report from the newspaper El Mundo stating that depositors have withdrawn over $1 billion since last Wednesday. The government denied that report.

Oil prices continued to trade lower, falling below $93 a barrel on Thursday, extending a sharp two-week sell-off, as traders worried about the potential impact on global growth from the European crisis. Crude oil has plummeted about 12% from $106 two weeks ago.

Energy companies traded lower. Chesapeake Energy (CHK) fell 4%, while WPX Energy (WPX) declined 6%.

Among other stocks making big moves:

— GameStop (GME) fell 9% after the world's largest video game retailer reported its first-quarter profit fell 9.8%, as fewer customers visited its stores and bought new games and systems.

— Sears Holdings (SHLD) rose 7% after the beleaguered retailer turned a profit in the first quarter, benefiting from a gain on the sale of some stores.

Want to Dump Stocks? Here Are Your Alternatives - Daily Finance

With the stock market dropping almost every day lately, a lot of nervous investors are looking longingly at the sidelines. Even professional investors have started to get bearish about the future prospects for stocks.

But before you hit that sell button, make sure you take a look at the other side of your trade. Once you've sold your stocks, what are you going to do with that cash? After looking at the alternatives, you might well come to a different conclusion about whether stocks are such a bad investment right now.

Volatility's back
The current mood on stocks is a big change from what we saw less than a month ago. Coming off a six-month rally, investors grew complacent and fearless. Between their highs in early October 2011 through the end of April, the iPath S&P 500 VIX Short-Term Futures ETN (NYS: VXX) , which tracks volatility measures, fell about 75%, while the leveraged VelocityShares Daily 2x VIX ETN (NYS: TVIX) lost almost 95% of its value.

But in May, fear has come back into the stock market, and many investors are responding by reaching for the sell button. Those same volatility ETNs are up 25% and 40%, respectively, since May 1, making conservative investors wonder whether it's time to get out of stocks now before things get any worse.

Where can you hide?
Whenever you sell an investment, you should also focus on what you're going to do with the money instead. Even if you're right about selling out, it does you no good if the alternative is worse.

The obvious alternative to stocks is cash. Bank accounts, Treasury bills, and other cash equivalents give you the security of knowing you can never see a loss of principal. With the Dow down more than 5% since May 1, that's a comforting guarantee.

But short-term Treasury bills pay less than 0.1% right now, while many bank accounts don't even get that far. Top-yielding savings accounts from CIT and Barclays (NYS: BCS) yield 1% as the banks are willing to pay above-average rates to draw savers in, but at that level, you'll fall well short of breaking even after inflation and taxes.

Reaching for more
So to avoid the surefire inflation-adjusted loss that savings accounts represent right now, you might look to other choices. But consider their pros and cons:

  • Bank CDs are just as safe as savings accounts. But even the highest-yielding five-year CDs listed on Bankrate earn less than 2% annually, and you commit to locking up your money for a long time. You'll face substantial fees if you pull your money out early.
  • Gold has acted as a safe haven in times of turmoil in the past. But this time around, gold has actually underperformed stocks, and the silver-tracking iShares Silver Trust (NYS: SLV) has done even worse as the combination of a potential slackening in industrial demand and bad investor sentiment take away interest in the white metal. Even longtime gold bulls like Jim Rogers believe that gold's near-term prospects are as bad as or worse than what some analysts are predicting for the stock market.
  • Various bond investments have different appeals and problems. Treasuries don't yield anything more than bank CDs do, making them an inferior choice. Even high-grade corporate bonds don't give you much of a boost over Treasuries, with IBM (NYS: IBM) having recently sold three-year notes at 0.75% and seven-year bonds at 1.875%. Meanwhile, in the high-yield corporate realm, you can find some more attractive yields, but you have to be careful to assess whether you're willing to take on the higher credit risk associated with their issuers. Most importantly, the threat of higher interest rates hangs over the entire bond market and could eventually cause price declines that would rival a bear market in stocks.
  • Commodities other than gold have seen mixed performance recently. But crude oil has seen big price drops lately, setting the stage for a change in profitability that could reverse huge portions of the growth in the energy industry in recent years.

Tread carefully
As you can see, all of these investments have their downsides. The question is whether their potential benefits outweigh them. Your answer to that question may be different from anyone else's, because it depends a lot on your particular financial situation.

But with many individual stocks offering solid dividend income and less volatility than the overall market, you can't count stocks out automatically. After looking at your portfolio, you may decide that keeping the stocks you own -- or switching into others that are better -- could be a far better choice than selling out and expecting financial Armageddon.

Investing for retirement takes resolve, discipline, and good investing ideas for the long haul. Let me invite you to read The Motley Fool's special report on retirement to find some stock suggestions as well as tips for staying the course through bull and bear markets. Get your free copy right now.

Forex: Stocks plunge yen soars -
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Stocks under pressure on Greece worries -

U.S. stocks were lower for a fifth day Thursday, as investors continued to fret about Greece's future in the eurozone.

The Dow Jones industrial average fell 87 points, or 0.7%, the S&P 500 lost 11 points, or 0.9%, and the Nasdaq shed 36 points, or 1.2%.

Retail giants Wal-Mart and Sears Holdings were the biggest gainers. Wal-Mart, the nation's largest retailer, posted stronger-than-expected quarterly earnings and sales. Rival Sears also reported a profit, even as sales declined, thanks to a boost from selling real estate assets. The retailer also announced it was looking at a partial spin-off of its Canadian operations.

Meanwhile, concerns about Greece's place in the 17-nation eurozone continued to weigh on investors.

European leaders voiced support Wednesday for keeping Greece in the body, but said the debt-ridden country must stick with unpopular austerity measures if it wants to continue receiving help.

Greek voters rebelled against those measures in the May 6 elections, denying the ruling coalition -- which had agreed to the bailout terms -- the votes needed to form a new government. Greek voters will go to the polls again on June 17.

Though the ability to form a governing coalition remains uncertain, the main fear is that an anti-austerity ruling party could cause the bailout deal to unravel, leading to a Greek default and an exit from the euro.

Adding to those concerns, the European Central Bank has suspended its lending to some Greek banks that need to sufficiently boost their capital.

Meanwhile, a growing number of depositors are withdrawing their money amid worries that their savings could be converted to a devalued currency if Greece drops the euro.

The rapid withdrawals adds pressure on the Greek banking system, which is the "primary trigger for some from of the eurozone break-up," said Jonathan Loynes, chief European economist at Capital Economics.

Investors remain worried about what a Greek exit from the eurozone would mean for global financial systems.

"Not surprisingly, concerns are growing that bank runs could soon become a regular feature in other troubled countries in the region deemed at risk of following Greece's lead," said Loynes.

Stocks finished in the red Wednesday, as positive economic data in the U.S. failed to counter increasing pessimism over Greece's fiscal woes.

World markets: European stocks slid on Thursday. Britain's FTSE 100 and the DAX in Germany slipped 1.2% and France's CAC 40 fell 1.1%.

Most Asian markets ended higher following a report that showed the Japanese economy grew 1% in the first quarter, which was much better than forecasts. Tokyo's Nikkei gained 0.9% on the news, while the Shanghai Composite rose 1.4%. Hong Kong's Hang Seng slipped 0.3%.

Economy: Initial jobless claims were unchanged in the week ended May 12 from the revised figure of 370,000. The number came in weaker than expected.

Foreclosures fell for the third straight month in April, reaching the lowest level since 2007, according to tracking service RealtyTrac.

A Philadelphia Fed report showed that regional manufacturing unexpectedly plunged in May for the first time in eight months. The Philly Fed index fell to -5.8 from 8.5 in April. Economists were expecting the index to increase to 8.8. Any reading below zero indicates weakness.

The index of leading indicators, which gauges the economy's performance over the next three to six months, was also discouraging. The index fell 0.1% in April, disappointing economists who expected it to rise 0.2%.

Companies: In addition to Wal-Mart and Sears, other retailers due to report results Thursday include Gap and Aeropostale, both due after the closing bell.

Also reporting after the close is Applied Materials, the manufacturer of chipmaking equipment, whose earnings are forecast to decline.

But the big tech news after the market close will come from Facebook, which is expected to price its initial public offering. Trading will begin Friday.

The social networking site upped the target price range for its stock earlier this week to between $34 and $38 per share. It announced Wednesday that 25% more shares of the company will be sold than previously announced.

The additional shares, disclosed in a filing with the Securities and Exchange Commission, could fetch an extra $3 billion -- bringing the total raised through Facebook's offering to as much as $16 billion, making it the most valuable tech IPO in history.

Shares of JPMorgan Chase fell Thursday, a day after the director of the FBI confirmed his agency had launched an initial investigation into a $2 billion trading loss suffered by the bank.

Euro, global stocks drop on latest euro zone fears - Reuters India

NEW YORK | Thu May 17, 2012 10:38pm IST

NEW YORK (Reuters) - The euro and world stocks declined on Thursday on concerns about the health of Spain's banks and the prospect of Greece leaving the euro zone.

On Wall Street stocks fell after a government report showing manufacturing in the mid-Atlantic states unexpectedly contracted in May.

Worries about Spanish banks resurfaced after a media report said customers of Bankia (BKIA.MC) had withdrawn more than 1 billion euros from their accounts in the past week. The Spanish government said there had been no such exit of deposits.

Shares of the partly nationalized Bankia fell 13.5 percent but recovered some of the losses after the government's denial.

The developments in Spain followed reports that customers of Greek banks were moving funds in on the belief the country would

exit the euro, adding to broader anxiety about the region's debt crisis.

"The whole equities market is being driven by a macro trade based upon contagion fear in Europe, and really the problem is undercapitalized banks there," said Jack de Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire.

The euro dropped to $1.2665, its lowest level since mid-January, past stop-loss sell orders below $1.2680 and on course for a test of its 2012 low of $1.2623, according to Reuters data. It last traded at $1.2701, down 0.1 percent.

The single currency has already shed 3.9 percent in May, coming close to its 2012 trough of $1.2624 reached in mid-January.

Global shares, as measured by MSCI's world equity index, declined 0.7 percent, and were set for a fifth day of losses along with U.S. stocks.

The Dow Jones industrial average was down 98.46 points, or 0.78 percent, at 12,500.09. The Standard & Poor's 500 Index was down 13.09 points, or 0.99 percent, at 1,311.71. The Nasdaq Composite Index was down 40.03 points, or 1.39 percent, at 2,834.01.

The pan-European FTSE 300 index dropped 1.1 percent, a fourth straight day of declines.

U.S. government bond prices rose. The benchmark 10-year Treasury note overcame technical resistance near 1.75 percent. The 10-year note was up 12/32, its yield easing to 1.72 percent, - just 5 basis points from its lowest level in at least 50 years.

Investors followed the heated political debate in Athens where opponents of harsh austerity measures to obtain an international bailout are expected to win new elections in June.

The worries over Greece also caused a sharp fall in oil futures. Brent July crude was down $1.12 at $108.63 a barrel.

Gold, however, rose more than 1 percent, bouncing off a 4 1/2-month low. Spot gold rose to $1,553.80 an ounce from $1,538.30 late in New York on Wednesday, when it plunged to $1,527 - its weakest since December 29.

The precious metal climbed to a high of $1,557.56 earlier, helped by the approaching expiry of gold options in the COMEX futures market.

(Reporting by Caroline Valetkevitch; additional reporting by Richard Hubbard and Silvia Antonioli in London and Rodrigo Campos in New York, editing by Kenneth Barry)

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