Stocks, Commodities Drop on Concern Greek Rescue May Unravel; Silver Falls

By Stephen Kirkland and Rita Nazareth – Oct 4, 2011

Stocks fell, with U.S. equities trading near bear-market levels, and a commodities gauge slid to a 10-month low amid concern a second aid package for Greece may unravel and contagion from the debt crisis will threaten banks.

The S&P 500 slipped 0.7 percent to 1,091.39 at 11:47 a.m. in New York and lost as much as 2.2 percent earlier, extending its plunge from an April peak to more than the 20 percent threshold of a bear market. The MSCI All-Country World Index sank 1.8 percent, with benchmark gauges in the U.K., Germany and France losing at least 2.6 percent. Lead and silver helped lead the S&P GSCI index of 24 commodities 0.9 percent lower. Treasuries dropped, sending 10-year yields up six basis points.

European governments hinted that bondholders may have to take bigger losses on Greek debt than previously negotiated. The possible breakup of Belgian bank Dexia SA and Deutsche Bank AG’s abandonment of its profit forecast added to signs that contagion from the debt crisis is spreading. Goldman Sachs Group Inc. cut its global growth forecasts and predicted recessions in Germany and France.

“The situation in Europe is the big overhang right now,” John Carey, a Boston-based money manager at Pioneer Investments, said in a telephone interview. The firm oversees about $250 billion. “Some people would find the announcements on Dexia and Deutsche Bank as reminiscent of what happened in 2008. I don’t think we’re in quite that extreme situation, but it reminds people of what happened.”
Bernanke Speaks

U.S. equities trimmed losses, and Treasuries turned lower, as Federal Reserve Chairman Ben S. Bernanke said the central bank stands ready to take additional steps to boost growth and cautioned lawmakers against budget moves that would harm the recovery. Bernanke’s testimony to Congress’s Joint Economic Committee in Washington signal the Fed may not be finished with attempts to stimulate the economy after a near-zero benchmark interest rate and $2.3 trillion of debt purchases since 2008 failed to produce self-sustaining growth in the economy and employment.

Orders for U.S. capital equipment increased in August by the most in three months, a sign business investment and exports held up in the face of mounting concern over the European debt crisis. Bookings for goods like computers and communications gear, excluding military hardware and aircraft, climbed 0.9 percent, the most since May, a Commerce Department report showed. Demand for all factory goods declined 0.2 percent.

The S&P 500 slumped 2.9 percent yesterday to 1,099.23, the lowest since September 2010. Goldman Sachs strategist David Kostin cut his forecasts for the S&P 500 and lowered his earnings estimate for 2012 to $98 a share from $102, saying there is a 40 percent chance the U.S. economy will slip back into a recession.
Slump Since April

Financial companies have led the S&P 500’s drop from a three-year high at the end of April, plunging more than 31 percent as a group through yesterday. Energy, commodity and industrial companies also tumbled more than 26 percent.

Companies in the S&P 500 started today’s session trading at 9.9 times 2012 forecast earnings, compared with the average in economic contractions since 1957 of 13.7, according to data compiled by Bloomberg. At the same time, analysts have cut projections for profits next year by 2.6 percent to $110.76 a share, the biggest eight-week decrease since 2009, the data show.

About $10 trillion was wiped from global equity markets in the third quarter. As of yesterday, benchmark measures for 37 out of 45 nations in the MSCI All-Country World Index posted declines of 20 percent or more from their peaks, according to data compiled by Bloomberg. The S&P 500 tumbled 14 percent in the third quarter, the worst drop since the three months ending December 2008. The Stoxx Europe 600 Index lost 17 percent in the third quarter.

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