U.S. stocks declined, following the biggest weekly drop in 2012 for the Dow Jones Industrial Average, as Greece struggled to form a government amid growing speculation the nation may leave the euro region.
The Standard & Poor’s 500 Index declined 0.8 percent to 1,343.16 at 9:31 a.m. New York time.
“The growing possibility of Greece saying bye bye has put the entire region into the realm of the unknown in terms of the economic ripple effects,” Peter Boockvar, equity strategist at Miller Tabak & Co. in New York, wrote in a note.
Global stocks fell as Greece’s political deadlock went into a second week after President Karolos Papoulias failed to secure agreement on a unity government and avert new elections with the country heading toward a possible exit from the euro area. Greece’s biggest anti-bailout party defied overtures to join the government yesterday, deepening the impasse.
Concern about Europe’s crisis grew as the cost of insuring against a Spanish default jumped to an all-time high. Chancellor Angela Merkel’s party was defeated in Germany’s most populous state in an election that helped the Social Democrats tighten their grip on the country’s regional governments. The result may embolden the Social Democrats as they align with French President-elect Francois Hollande in an anti-austerity front.
As individuals bail out of U.S. stocks at the fastest rate in three decades, professional speculators have cut bearish bets by the most since 2008. Money managers are net short 19,375 contracts on the S&P 500, down 82 percent from a four-year high in September even after the figure jumped from 3,584 last week, data compiled by Bloomberg and the Commodity Futures Trading Commission show.
U.S. equity mutual funds recorded $18 billion of outflows in April, the most since at least 1984, according to preliminary data from the Investment Company Institute.
Hedge funds and other institutions are speculating the index will extend its 23 percent rally since October after 69 percent of S&P 500 companies beat first-quarter earnings estimates and economists projected accelerating U.S. growth this year. Bears say last week’s addition to bets on declines show short sellers have completed almost all of the buying they are likely to do, depleting demand for equities.
“For the professional side, stocks look pretty compelling,” David Goerz, chief investment officer at Highmark Capital Management Inc., said in a telephone interview from San Francisco on May 9. His firm oversees about $17 billion. “Underlying economic strength is much more resilient than anybody expected it to be this year.”
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