U.S. Stocks Fall Most in Five Weeks on Europe, Debt-Limit Talks

Traders work on the floor of the New York Stock Exchange in New York. Photographer: Jin Lee/Bloomberg

U.S. stocks fell this week, including the biggest one-day drop in a month, amid concern the debt crisis in Europe is spreading and American lawmakers are putting the nation’s top credit rating in jeopardy.

The Standard & Poor’s 500 Index pared its weekly slump yesterday as energy and technology companies rallied. Alcoa Inc. (AA), the largest U.S. aluminum producer, lost 5.5 percent this week after reporting profit that missed analyst estimates. Bank of America Corp. (BAC) dropped 6.5 percent, the most in the Dow Jones Industrial Average, as financial companies tumbled. Google Inc. (GOOG) surged 12 percent, the most since April 2008, after beating sales projections.

The S&P 500 dropped 2.1 percent to 1,316.14 this week, the most since the five-day period that ended June 10. The index retreated after posting the biggest two-week increase since 2009. The Dow fell 177.47 points, or 1.4 percent, to 12,479.73.

“The market reaction is completely appropriate considering the uncertainty that we have in the world,” Michael Yoshikami, chief executive officer and founder of YCMNet Advisors, said in a telephone interview. His firm manages $1.1 billion. U.S. stocks retreated because of the debt crisis in Europe and “what’s happening with the economic debate in Congress about the debt ceiling. Investors feel anxious, and when investors feel anxious they either sell or sit out,” he said.

Possible Cut

U.S. equities dropped as the impasse between President Barack Obama and Republicans in Congress prompted Moody’s Investors Service and S&P to say they may cut the federal government’s credit rating. The S&P 500 had risen to within 10.39 points of the almost three-year high reached on April 29. Equities also dropped as European bonds slumped, spurring concern the region’s debt crisis is worsening.

The Chicago Board Options Exchange Volatility Index, also known as the VIX, which measures the cost of using options as insurance against declines in the S&P 500, jumped 22 percent, the biggest gain since the week of May 6, to 19.53.

Energy companies were the only ones to post gains within 10 main groups in the S&P 500, adding 0.1 percent. Financial companies dropped the most, 3.9 percent. Industrial and consumer-discretionary companies fell more than 2.5 percent.

U.S. stocks plunged on July 11 as Spanish 10-year bond yields topped 6 percent for the first time since 1997 amid concern Europe’s debt crisis will spread. European finance chiefs clashed over how to dig Greece out of its financial hole just as markets battered the bonds of Spain and Italy, opening a new front in the debt crisis.

Ireland Downgraded

The S&P 500 also dropped on July 12 as Moody’s downgraded Ireland, which joined Portugal and Greece in becoming the third euro-area country to be lowered to junk.

Alcoa, which became the first Dow company to release second-quarter results, fell 5.5 percent to $15.48. Second- quarter profit excluding some items was 32 cents a share, missing the 33-cent average estimate of 14 analysts surveyed by Bloomberg.

While Alcoa missed projections, 11 of 13 S&P 500 companies that released results this week beat projections.

“People are beginning to focus on earnings,” New York- based Andrew Goldberg, who helps oversee $544 billion in assets as market strategist at JPMorgan Funds, said in telephone interview. “Investors need to understand that there’s a difference between the economy and investing. There’s macro uncertainty, but corporate fundamentals are strong.”

The KBW Index fell 4.2 percent as all of its 24 stocks declined. Bank of America, the biggest U.S. lender by assets, tumbled 6.5 percent to $10, the lowest since May 2009. Citigroup Inc. (C) plunged 8.7 percent, the biggest weekly drop since April 2010, to $38.38.

Flir, Google

Flir Systems Inc. (FLIR), the maker of night-vision cameras used by U.S. combat forces, slumped 15 percent, the most in the S&P 500, to $28.92. It said second-quarter profit excluding some items was 35 cents a share, trailing the average analyst estimate by 4 cents, according to Bloomberg data.

Google advanced 12 percent to $597.62. Sales, excluding revenue passed on to partner sites, rose to $6.92 billion. That topped the $6.57 billion average estimate of analysts surveyed by Bloomberg.

The S&P 500 Energy Index rose as BHP Billiton Ltd. (BHP), the world’s largest mining company, agreed to buy Petrohawk Energy Corp. (HK) for $12.1 billion in cash, a bet that natural-gas demand will increase in the U.S. Petrohawk surged 55 percent, the most since at least 1999, to $38.17.

Chesapeake Energy Corp. (CHK), the most-active U.S. natural-gas driller, jumped 7.8 percent to $32.96. Range Resources Corp. (RRC) posted the second-biggest rally in the S&P 500, adding 10 percent to $61.78.

Clorox Co. (CLX) climbed 9.4 percent, the most since October 2008, to $74.55. Billionaire investor Carl Icahn, who offered to acquire Clorox yesterday in a deal valuing the company at $10.2 billion, said he expects interest from other buyers and that he hasn’t studied spinning off individual brands.

To contact the reporters on this story: Cecile Vannucci in New York at cvannucci1@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

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