U.S. Stocks Drop, Ending Longest S&P 500 Winning Streak in Year

U.S. stocks fell, halting the longest rally in a year, after allegations of fraud at Goldman Sachs Group Inc. heightened concern the government will crack down on Wall Street and wiped out the week’s advance.

Goldman Sachs sank 10 percent this week, the most since March 2009, after the Securities and Exchange Commission sued the bank and one of its vice presidents for misstating and omitting key facts about a collateralized debt obligation. The 1.6 percent retreat in the Standard & Poor’s 500 Index yesterday erased gains earlier in the week spurred by better-than- estimated results at companies from Intel Corp. to CSX Corp. and JPMorgan Chase & Co.

The S&P 500 slipped 0.2 percent to 1,192.13. Before yesterday, the index was headed for a seventh straight weekly advance, the longest since May 2007. The Dow Jones Industrial Average rose 21.31 points, or 0.2 percent, to 11,018.66. The Russell 2000 Index of small companies jumped 1.7 percent.

“I was very impressed with the earnings we got and the market was doing so well, but then you get a punch in the gut with these Goldman Sachs issues,” said Don Wordell, who oversees the RidgeWorth Mid-Cap Value Equity Fund, which has beaten 97 percent of its peers during the past five years. “It brings investors back to reality. There’s a tremendous amount of skepticism.”

Failure to Disclose

Goldman Sachs, the most profitable firm in Wall Street history, erased its advance for 2010 and ended the week at $160.70, the lowest price since March 3. The SEC said the bank created and sold CDOs tied to subprime mortgages in early 2007, as the U.S. housing market faltered, without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against them. Goldman Sachs said the claims are “completely unfounded.” Paulson wasn’t accused of wrongdoing.

Google Inc. fell 2.8 percent to $550.15. The owner of the world’s most popular Internet search engine reported profit that missed some analysts’ estimates, underscoring the rising cost of pursuing growth in new markets.

Raw-material producers in the S&P 500 collectively dropped 1.9 percent for the biggest retreat among 10 groups. Alcoa Inc., the largest U.S. aluminum producer, fell 3.3 percent to $13.91 on first-quarter sales that missed the average analyst estimate.

“The key question is: Is this the peak quarter in terms of earnings growth as the comparisons get more difficult as the year proceeds?” said Peter Tuz, president of Chase Investment Counsel, which manages $2.8 billion in Charlottesville, Virginia.

Earnings Season

Microsoft Corp., Apple Inc., Johnson & Johnson and Coca- Cola Co. are among the 129 companies in the S&P 500 scheduled to report quarterly results next week. Total profit for the stock index rose 35 percent during the first three months of the year, according to average analyst estimates compiled by Bloomberg.

Massey Energy Co., which runs a West Virginia coal mine where 29 people were killed in an April 5 explosion, tumbled 9.5 percent to $42.27 after President Barack Obama ordered a crackdown on safety violations nationwide. The decline was the biggest in the S&P 500 after Goldman Sachs.

Intel rallied 6.1 percent, the most since December, to $23.92. The world’s largest chipmaker predicted rising sales this quarter and record profit margins for the year, fueling optimism of a strengthening rebound in technology spending. A measure of computer companies in the S&P 500 climbed 1.4 percent for the biggest gain among 10 main groups in the S&P 500.

CSX Rallies

CSX rose 2.8 percent to $54.44. The third-largest U.S. railroad posted first-quarter profit above the average analyst estimates on increased shipping volumes and more revenue from each carload.

“A lot is already baked in,” said Noman Ali, who manages $3 billion of U.S. stocks at MFC Global Investment Management in Toronto. “Unless companies can beat estimates meaningfully and then raise guidance for the rest of the year, I see the market correcting down because of the strong rally we’ve had year-to- date.”

JPMorgan ended the down 0.9 percent for the week at $45.55. The bank rallied 4.1 percent on April 14 after beating first- quarter profit forecasts and reporting record fixed-income trading revenue. The gains were erased as concern stemming from the SEC lawsuit against Goldman Sachs dragged bank shares lower.

The allegations against Goldman Sachs were announced as Obama tries to pass the most sweeping overhaul of financial regulations since the 1930s. The proposed legislation would mean stronger oversight of derivatives trading and hedge funds, a consumer financial-protection authority and a system for unwinding large systemically important firms when they fail.

European Stocks Snap Six Weeks of Gains; Mining Stocks Slide

European stocks dropped for the first week in seven as U.S. regulators sued Goldman Sachs Group Inc. for fraud and consumer confidence unexpectedly declined, overshadowing a European Union-led agreement to rescue Greece.

Xstrata Plc fell 4.8 percent, leading mining stocks lower. Deutsche Bank AG, Germany’s biggest lender, slid 3.6 percent. ING Groep NV retreated 1.4 percent. Deutsche Lufthansa AG dropped as a cloud of ash from an Icelandic volcano forced the cancellation of flights in northern Europe. Royal Bank of Scotland Group Plc rose after Bank of America Merrill Lynch said the lender may return to profit this year.

The Stoxx Europe 600 Index slipped 0.7 percent to 267.81 this week, its biggest drop since February, after a sell-off in the last hour of trading as the Securities and Exchange Commission accused Goldman Sachs and one of its vice presidents of defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages.

“There is hardly any room for negative surprises such as the SEC charge at Goldman Sachs,” said Ineke Valke, and Amsterdam-based strategist at Theodoor Gilissen Bankiers, which manages about $7 billion. “Markets will now probably enter a period of moving sideways until there is some confirmation on economic recovery in the longer term. Momentum seems to have passed.”

Aid Package

The Stoxx 600 has climbed 5.5 percent this year as the European Union agreed a $61 billion aid package to help Greece tackle the region’s biggest budget deficit and the U.S. Federal Reserve pledged to maintain record-low interest rates for an extended period to secure the economic recovery.

National benchmark indexes decreased in 12 of the 18 western European markets. Germany’s DAX fell 1.1 percent and France’s CAC 40 retreated 1.6 percent. The U.K.’s FTSE 100 decreased 0.5 percent. Greece’s ASE added 0.2 percent, paring two weeks of losses.

The Stoxx 600 dropped for the first two months of 2010 amid concern that Greece, Portugal and Spain will struggle to rein in their budget deficits.

Euro-region finance ministers agreed a rescue package for Greece last weekend after the nation’s borrowing costs surged to an 11-year high. They said they would offer as much as 30 billion euros ($40.5 billion) in three-year loans in 2010 at below market rates. Another 15 billion euros would come from the International Monetary Fund.

Yields Rise

EU finance ministers meeting in Madrid on April 16 said Greece doesn’t have an immediate plan to trigger the rescue package even as the country’s bond yields rose to the highest since before the bailout plan was announced.

Greek Prime Minister George Papandreou asked for a meeting with the EU, the IMF and the European Central Bank. Talks will begin in Athens on April 19.

EFG Eurobank Ergasias SA, Greece’s second biggest lender, added 3.1 percent while Pireaus Bank SA gained 4.9 percent.

In the U.S., the Federal Reserve on April 14 said in its Beige Book business survey that the economy expanded “somewhat” across most of the U.S. in March as consumer spending and manufacturing improved, signaling the recovery is broadening without gaining much speed.

Sales at U.S. retailers climbed in March more than anticipated, signaling consumers will play a bigger role in a broadening economic recovery. Purchases increased 1.6 percent last month, the most in four months, and gains for February and January were revised up, Commerce Department figures showed April 14. Sales excluding autos rose 0.6 percent, also surpassing expectations.

U.S. Confidence

The Reuters/University of Michigan preliminary U.S. consumer sentiment index fell to 69.5 in April, the lowest level in five months, indicating Americans are discouraged about the labor market. Economists had projected the sentiment index would rise to 75, according to the median of 69 economists in a Bloomberg News survey.

The first-quarter earnings season began in the U.S. this week, with analysts predicting combined profit for S&P 500 companies increased 30 percent from a year earlier, according to estimates compiled by Bloomberg. For Europe’s Stoxx 600, earnings will climb 45 percent in 2010, the data show.

China Growth

China’s growth accelerated to the fastest pace in almost three years in the first quarter, increasing speculation that the government may move to cool the economy. Gross domestic product rose 11.9 percent from a year earlier, the country’s statistics bureau reported on April 15, topping the median 11.7 percent estimate in a Bloomberg News survey of economists. [bn:WBTKR=DBK:GY] Xstrata, the world’s fourth-largest copper producer, slipped 4.8 percent. Basic-resources stocks retreated as Alcoa Inc. reported earnings that disappointed investors and China increased down- payment ratios for some home purchases, saying “more forceful” steps are needed to cool speculation. BHP Billiton Plc, the world’s biggest mining company, slid 4 percent.

Deutsche Bank [] slipped 3.6 percent while ING, the Netherlands’ biggest financial-services company, decreased 1.4 percent. Societe Generale SA, France’s second-biggest lender, fell 2.8 percent.

Airlines dropped as a cloud of ash from a volcano in Iceland shut airports in northern Europe. Deutsche Lufthansa AG, Europe’s second-biggest airline, fell 2.5 percent. British Airways Plc tumbled 5.2 percent.

Royal Bank of Scotland Group Plc soared 8.1 percent after an analyst at Bank of America Merrill Lynch said Britain’s biggest government-owned bank may return to profit this year.

“RBS is one of the most geared banks into recovery in Europe,” wrote Michael Helsby. “We think it can turn a profit in 2010 and that profitability can recover strongly thereafter driven by rising margins, tight cost control and falling bad debts.”

Canadian Stocks Decline as Suncor Energy, Goldcorp Retreat

Canadian stocks fell the most in two months, sending the main index to its first weekly decline since March 19, as commodity producers declined on a stronger U.S. dollar after China took steps to cool its economy.

Suncor Energy Inc., Canada’s biggest oil and gas company, dropped 3.3 percent as oil futures slid the most in two months. Goldcorp Inc., the country’s second-largest gold producer, lost 2.1 percent as the metal retreated more than $22 an ounce. Teck Resources Ltd. slumped 4.5 percent after raised minimum mortgage rates and down payment ratios for some home purchases.

The Standard & Poor’s/TSX Composite Index decreased 140.86 points, or 1.2 percent, to 12,070.66, for a 0.9 percent decline this week. The index retreated to its lows of the day after the Securities and Exchange Commission sued Goldman Sachs Group Inc. for fraud tied to collateralized debt obligations.

The Canadian benchmark had climbed 8.8 percent from Feb. 5 to yesterday as the Reuters/Jefferies CRB Commodity Price Index rallied 8.2 percent on speculation growth in emerging markets would spark greater demand for energy and raw materials. Companies in those industries make up 45 percent of Canadian stocks by market value.

“The markets are a little bit nervous about the fact that at one point, China will have to raise rates and slow down lending,” said Stephen Gauthier, a money manager at Demers Valeurs Mobilieres in Montreal, which oversees C$150 million ($148 million).

China’s cabinet said “more forceful” steps are needed to cool speculation after property prices rose at a record pace in March.

Dollar Rises

The U.S. dollar rose for a second day against the euro after European Union finance ministers said Greece lacks an immediate plan to trigger a rescue package.

Crude oil slumped 2.7 percent in New York to an April low of $83.23 a barrel. Suncor declined 3.3 percent to C$33.65. Canadian Natural Resources Ltd., the country’s second-largest energy company by market value, decreased 2.2 percent to C$77.06. Cenovus Energy Inc., the oil company spun off from EnCana Corp. in December, slipped for the first time in seven days, losing 3.3 percent to C$29.16.

Gold futures retreated 2 percent, the most since Feb. 4. Goldcorp fell 2.1 percent to C$39.44. Barrick Gold Corp., the world’s largest producer, dropped 1.2 percent to C$39.65. Jaguar Mining Inc., which mines gold in Brazil, tumbled 5.8 percent to C$10.63 after saying its costs increased in the first quarter due to currency fluctuations.

Drilling Results

Andean Resources Ltd., which explores for gold in Argentina, surged 6.3 percent to a record C$3.06 after announcing drilling results.

Teck, Canada’s largest base-metals producer, lost 4.5 percent to C$42.67 as copper and zinc retreated. Teck also sells coal for use in Chinese steel mills.

An index of Canadian banks erased earlier gains and fell 0.4 percent after the SEC announced its case against Goldman Sachs. Toronto-Dominion Bank, which has 1,051 U.S. branches, dropped 1.1 percent to C$76.13. Bank of Nova Scotia, Canada’s third-largest bank, declined 0.6 percent from a 22-month high to C$51.81.

Air Canada jumped 6.8 percent to C$2.50 after Raymond James Financial Inc. analyst Ben Cherniavsky raised his rating on the country’s biggest airline to “strong buy” from “outperform.” Passenger traffic and cargo demand are increasing, Cherniavsky wrote.

MDS Inc., the provider of medical products and services, led the S&P/TSX with a 4.6 percent climb to C$9.05. RBC analyst Douglas Miehm set a 12-month price forecast of $9.50 on the company’s U.S.-listed shares.

Oil falls below $85 on demand doubts, dollar

Oil prices fell below $85 a barrel on Friday as doubts over U.S. crude demand re-emerged and the dollar strengthened, making imports more expensive for emerging economies where consumption is surging.

The dollar .DXY gained 0.2 percent against a basket of currencies on Thursday, while European stock markets were sluggish following Asian equity losses.

U.S. crude for May delivery fell 94 cents to $84.57 a barrel by 1105 GMT, more than $2 lower than an 18-month high above $87 reached last week.

"The dollar is a bit stronger and equity markets are not too friendly today and that is having a negative impact (on oil prices)," said Eugen Weinberg, oil analyst at Commerzbank in Frankfurt.

"We've seen this for the last month that oil prices are more affected by macro factors impacting sentiment rather than fundamental factors," Weinberg added.

An unexpected jump in the weekly number of U.S. workers filing new jobless benefit claims raised doubts over the strength of economic recovery in the world's largest energy consumer, weighing on oil prices.

The May London Brent crude oil contract reached 18-month highs just before it expired on Thursday, jumping to a premium over the front-month U.S. crude contract of over $1.60.

The June contract, now the front-month contract, was trading about $1 higher than the equivalent contract for U.S. crude on Friday, shedding 76 cents to $86.83.

BRENT VS U.S. CRUDE

Strong economic data out of China painted a more positive outlook for demand across Asia, giving relative support to prices of Brent crude, the benchmark for most of the oil produced in Europe, Africa and Asia.

May Brent settled at $87.17 on Thursday, the highest close since front-month Brent ended at $90.25 on October 3, 2008. Brent's $87.58 intraday peak was the highest since $87.99 was struck on October 7, 2008.

Barclays Capital's technical team said in a note to clients that a corrective phase that had dominated the last week or so of oil trading was now over and the next targets were significantly higher.

"Following five days of modest lower closes, Brent crude is pressuring the top of a bullish flag-like pattern," Barclays Capital said. Brent is ready to test $88.15 per barrel, then

$90.00.