In the U.S.: U.S. Stock-Index Futures Fall As JPMorgan Drops On Report

28 June 2012

Jobs, waning consumer spending, Euro-unrest and JPMorgan all set to sober up markets after yesterday’s rally.

U.S. stock futures declined, indicating the Standard & Poor’s 500 Index will snap a two-day rally, as JPMorgan Chase & Co. (JPM) tumbled on a report that the lender’s trading losses may total as much as $9 billion.

JPMorgan slumped 3.2 percent after the New York Times said the trading losses may exceed the firm’s initial estimate. Bank of America Corp. (BAC) and Citigroup Inc. (C) slid at least 1.7 percent.

S&P 500 futures expiring in September fell 0.5 percent to 1,318.50 at 8:46 a.m. New York time. Dow Jones Industrial Average futures lost 75 points, or 0.6 percent, to 12,478.

Financial shares tumbled as The New York Times reported that JPMorgan’s losses have increased in recent weeks as it sought to exit its holdings, citing unidentified former traders and executives at the bank. JPMorgan lost 3.2 percent to $35.60. Bank of America slid 1.7 percent to $7.64. Citigroup dropped 2.3 percent to $26.47. Morgan Stanley (MS) fell 1.5 percent to $13.70.

Europe’s leaders today cap their latest effort to check the financial crisis that claimed Cyprus this week as its fifth victim. Euro-area finance ministers set the stage for today’s gathering in Brussels of the European Union’s 27 chiefs, approving Cyprus’s bailout and detailing how they would aid Spanish banks. Consensus breaks down on safeguarding governments in Spain and Italy, with German Chancellor Angela Merkel rejecting calls to do more to cut their borrowing costs.

The U.S. economy grew 1.9 percent in the first quarter, reflecting a gain in consumer spendingthat now shows signs of cooling as the labor market weakens. The number of applications forunemployment benefits hovered last week near the highest of the year, showing little improvement in the labor market.

Europe’s Crisis

Concern about a worsening of Europe’s debt crisis and a global slowdown has taken the S&P 500 down 5.4 percent this quarter. Energy and financial shares have had the biggest losses in the period, tumbling at least 9.5 percent.

U.S. executives are tapping into their record pile of cash for the first time in four years as they drive spending on plants and equipment to an all-time high.

Cash held by S&P 500 companies, excluding financial institutions and utilities, fell 1.4 percent to $1.01 trillion in the first quarter, according to data compiled by Howard Silverblatt, a New York-based senior index analyst at S&P. Capital spending, based on 12-month trailing data compiled by Bloomberg for the entire index, rose 3.3 percent during the same period and reached a record $66.6 billion last month.

While record-low interest rates may have prompted companies to build more factories, concern over the European debt crisis and expiration of Bush-era tax cuts will make executives reluctant to keep increasing spending, said David Sowerby, a money manager at Boston-based Loomis Sayles & Co.

‘Great Concern’

“It will only persist to the extent that companies remain reasonably confident in the business outlook,” Sowerby, whose firm oversees about $170 billion, said in a telephone interview. “With the great concern in Europe as well as the pending expiration of the tax cuts, you could see a return to rebuilding cash and less capital expenditure.”

Companies amassed $1.03 trillion in cash at the end of last year after beating analysts’ earnings estimates for 12 straight quarters, data compiled by S&P and Bloomberg show. Combined profits by S&P 500 stocks rose 9.9 percent to a record $92.09 a share in 2011, Bloomberg data show.

Executives are seeking ways to give back money to shareholders. While share buybacks fell by 6.2 percent to $84.3 billion in the first quarter from a year earlier, dividends increased by 14 percent to $64.1 billion, S&P data show.


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