Signs of Slowing Economy Drive S&P Down in April
By Edward Krudy
NEW YORK (Reuters) – The S&P 500 posted its first monthlydecline since November on Monday, as stocks slipped on signs the U.S. economy may be slowing and as a recession in Spainhighlighted risks in the euro zone.
Despite Monday’s decline, the picture was not overwhelmingly negative. The S&P closed out April with a decline of 0.8 percent, after four straight days of gains last week helped the index pare much steeper losses for the month.
Still, a recent string of economic data suggests the economy may slow in the summer months and has caused the market to stall just shy of the four-year highs reached earlier in the month. A much sharper-than-expected decline in Midwestern business activity in April reported on Monday by an industry group was the latest evidence of a slowdown.
“We had such a strong first quarter, and we’ve lost that momentum in the last two weeks,” said Jake Dollarhide, chief executive at Longbow Asset Management in Tulsa, Oklahoma. The data “reinforces the ominous tone on Wall Street, along with the fears we have about Europe.”
Composite trading volume was among the lightest of the year at 6.1 billion on Monday compared with a daily average of this year of around 6.8 billion. The CBOE volatility index (.VIX), or VIX, climbed 5.1 percent, after earlier hitting its highest level in more than a week.
Spain on Monday reported its economy contracted in the first quarter, dragging the country into recession as deep government spending cuts to reduce a massive deficit and troubles in the banking sector likely delayed any return to growth. Though expected, the news highlighted the serious headwinds the world economy faces.
Banks were among the top decliners on Wall Street after Standard & Poor’s cut the credit ratings of 11 Spanish banks on Monday, following its downgrade of Spain last week.
The S&P 500 financial sector index (.GSPF) fell 0.6 percent while Bank of America Corp (BAC.N) dropped 1.7 percent to $8.11. Shares of Spanish bank Santander (STD.N) traded in New York fell 2.2 percent to $6.33 and are down 16 percent this year.
The Dow Jones industrial average (DJI:^DJI) dropped 14.68 points, or 0.11 percent, to 13,213.63. The Standard & Poor’s 500 Index (MXP:^SPX) fell 5.45 points, or 0.39 percent, to 1,397.91. The Nasdaq Composite Index (NAS:^COMP) lost 22.84 points, or 0.74 percent, to 3,046.36.
The S&P 500’s 0.8 percent decline for April was a comeback from earlier in the month when worries over Europe and the U.S. economy sent it down more than 4 percent for the month.
Many investors are still worried about the potential for a pullback heading into the seasonally weak period for stocks that starts in May, especially if it is accompanied by a slowing economy and more problems in Europe.
“In equities, we stepped back to neutral several weeks ago,” said Goldman Sachs in a research note. “Our general view is that the U.S. seems to be slowing – though how much and for how long is an open question – while equity market domestic growth views remain elevated.”