U.S. Stocks, Commodities Retreat After Job Losses Top Estimates

July 2 (Bloomberg) -- U.S. stocks fell, sending the Standard & Poor’s 500 Index to a third straight weekly drop, as a worse-than-projected decrease in jobs added to concern that rising unemployment will prolong the recession. Treasuries rose, while oil retreated to a five-week low.

Home Depot Inc., Alcoa Inc. and Travelers Cos. lost more than 3 percent after the Labor Department said payrolls shrank by 467,000 jobs last month, 102,000 more than the average economist estimate. Lear Corp., the second-biggest maker of automotive seats, sank on plans to file for bankruptcy. Europe’s Dow Jones Stoxx 600 Index plunged 2.4 percent, the most in almost two weeks, following the jobs report.

“It’s ugly out there,” Jack Ablin, who oversees $60 billion as chief investment officer at Harris Private Bank in Chicago, told Bloomberg Television. “We were trying to gain a little bit of traction on the jobs front, to get less bad numbers on a monthly basis. Clearly this month’s report is a setback.

” The S&P 500 tumbled 2.4 percent to 901.92 at 1:40 p.m. in New York, extending its slump since June 12 to 4.7 percent and erasing its 2009 gain. The Dow Jones Industrial Average retreated 176.54 points, or 2.1 percent, to 8,327.52. Thirteen stocks fell for each that rose on the New York Stock Exchange, the broadest decline since April 20.

The stock market’s three-week slump has been spurred by concern the S&P 500’s 40 percent surge since March outpaced prospects for a recovery in the economy and corporate profits. The U.S. equity benchmark is poised to cap its longest stretch of weekly losses since March. U.S. markets will be closed tomorrow for the Independence Day holiday.

Sector Divergence

A divergence of Dow Jones’s industrial, transportation and utility stock indexes suggests a rally in the U.S. market may stay stalled near current levels, according to Andrew Burkly, a technical analyst at Brown Brothers Harriman.

The Dow Jones Industrial Average last month rose to the highest reading since January before retreating to a level that’s still above the average of the past 50 days. The Dow Jones Utilities Average, on the other hand, extended its June rally into this month, hitting a five-month high yesterday. The Dow Jones Transportation Average, while also staying above its 50-day moving average, generated the least bullish pattern by failing to exceed a May high, according to Burkly.

Earnings Season

The second-quarter earnings season will kick off next week with Alcoa, the largest U.S. aluminum producer, reporting results on July 8. Analysts estimate profits in the S&P 500 declined 34 percent in the second quarter and will slump 21 percent on average in the third before rebounding 61 percent in the final three months of the year, according to Bloomberg data.

“I have a hard time imagining we’re going to go into a new raging bull market from here,” said Randy Frederick, director of trading and derivatives at Charles Schwab & Co. in Austin, Texas. “People can’t spend if their comfort level is low and they’re worried about their jobs.

” Home Depot, the biggest home-improvement retailer, lost 3.9 percent to $22.79. Alcoa, the nation’s largest aluminum producer, retreated 3.7 percent to $9.97. Travelers, the insurer that stayed profitable through the credit crisis, slumped 3.5 percent to $39.69.

Lear plunged 28 percent to 35 cents. The company, after reaching an agreement with representatives of lenders and bondholders, said it will “commence shortly” with a Chapter 11 reorganization.

GM IPO

General Motors Corp., the bankrupt automaker selling most of its assets to the U.S. government, may file for an initial public offering of its stock in 2010, according to an adviser to President Barack Obama. GM was in bankruptcy court yesterday seeking approval to sell most of its assets to the Treasury, which is paying for the company with the more than $27 billion in loans it has made to the automaker.

Johnson Controls Inc. posted the S&P 500’s second-steepest loss, sliding 7.4 percent to $21.07. The maker of car interiors and batteries was downgraded to “hold” from “buy” at Deutsche Bank AG on concern the stock price already reflects the company’s ability to navigate the auto industry slump.

The stock’s decline in the index was exceeded only by an 8.9 percent tumble in shares of Monster Worldwide Inc., the world’s largest online recruiting company, following the jobs report. The Labor Department figures showed the jobless rate rose to 9.5 percent, the highest since August 1983, from 9.4 percent.

‘Clearly Disappointing’

“It’s clearly disappointing,” Hugh Johnson, who manages more than $1.5 billion as chairman of Albany, New York-based Johnson Illington, said of the employment data. “I would argue that we’ll have a correction between 5 and 15 percent” in the stock market.

Oil retreated 3.5 percent to $66.89 a barrel, Treasuries rose and the dollar climbed against the euro on speculation a weak labor market will prolong the recession. The Reuters/Jefferies CRB Index of 19 raw materials fell 1.9 percent, led by lower gasoline and crude prices.

All 40 stocks in the S&P 500 Energy Index tumbled. Halliburton Co. and Hess Corp. lost more than 5.5 percent, leading the measure of oil drillers, explorers and equipment suppliers to a 3.1 percent slump.

Elan Corp. surged 13 percent to $7.88. Johnson & Johnson agreed to develop its medicines against Alzheimer’s disease and pay $1 billion for an 18.4 percent stake in the Irish drugmaker.

Benchmark indexes advanced yesterday, adding to gains from the S&P 500’s best quarter since 1998, as improving gauges of manufacturing and home sales added to optimism the worst of the recession is over.

Worrisome Rally

The steepest quarterly rally in value stocks is a bearish sign to some of the largest money managers, who say it shows the equity market has relied on companies with the worst finances to fuel its rebound.

Money-losing companies in the MSCI World Value Index with the most debt climbed an average of 38 percent last quarter, compared with a 20 percent gain for the MSCI World Index, according to data compiled by Bloomberg. That pushed value stocks, or those trading at the lowest level relative to their earnings or assets, in the index up 22 percent, the biggest increase since at least 1995.

Gains will be harder to come by as investors search for profit growth to justify the 41 percent rally in the MSCI World from March 9 through yesterday, according to James Dunigan of PNC Financial Services Group Inc.

Stock investors will monitor the Treasury’s auctions next week to see if demand holds up as Obama pushes the nation’s marketable debt to an unprecedented $6.45 trillion. The Treasury will hold four auctions next week for the first time to sell $73 billion of notes, bonds and inflation-protected securities as the U.S. accelerates debt sales to finance a record budget deficit.