(Bloomberg News) - U.S. stocks retreated, extending the longest decline since 1978 for the Dow Jones Industrial Average, as concern the economy is slowing overshadowed the cheapest equity valuations in more than a year.
Caterpillar Inc. and Dow Chemical Co. slumped 2.6 percent, pacing declines among companies most-tied to the economy, as a report showed that service industries expanded less than forecast. Chevron Corp. and Occidental Petroleum Corp. dropped more than 2.3 percent as oil tumbled following a government report showing an increase in inventories. MasterCard Inc., the second-biggest payments network, advanced 8.1 percent after profit rose 33 percent as customers' spending increased.
The Dow average dropped for a ninth straight day, losing 136.54 points, or 1.2 percent, to 11,730.08 at 12:23 p.m. in New York. The Standard & Poor's 500 Index slumped 1.1 percent to 1,240.61 after erasing its 2011 gain yesterday in a seventh straight decline. The index traded for 13.6 times reported earnings, the cheapest level since July 2010.
"The economy is OK, but not strong enough to dispel some of the damage from the latest weak numbers," Peter Sorrentino, a senior money manager at Huntington Asset Advisors in Cincinnati, said in a telephone interview. The firm oversees $14.8 billion. "Earnings reports have been strong. Still, the macro picture needs to improve. I'm not advocating to my customers that they make a new commitment to equities in a broad fashion at this point. There doesn't seem to be a real appetite for risk."
Growing concern that the U.S. economy is faltering has erased $1.07 trillion from American equities in less than two weeks, according to data compiled by Bloomberg. The S&P 500 plunged 2.6 percent yesterday, its biggest one-day loss in a year and giving the index the longest losing streak since October 2008, in the depths of the financial crisis caused by Lehman Brothers Holdings Inc.'s bankruptcy.
Investors sought the safety of Treasuries yesterday even as President Barack Obama signed a plan to raise the federal debt limit, avoiding an American default. Attention has shifted from the political debate in Washington to weakening economic data.
Stocks fell today after a report showed service industries expanded in July at the slowest pace since February 2010 as orders and employment cooled, a sign the biggest part of the U.S. economy had little momentum entering the second half. The Institute for Supply Management's index of non-manufacturing businesses dropped to 52.7 from 53.3 in June. Readings above 50 signal expansion, and economists projected 53.5 for July, according to the median forecast in a Bloomberg News survey.
Companies in the U.S. added 114,000 workers to payrolls in July, according to figures from ADP Employer Services. The median forecast of economists surveyed by Bloomberg News called for an advance of 100,000. The data comes two days before a government report projected to show an increase of 85,000 jobs.
Stocks of companies whose earnings depend on economic growth slumped. The Morgan Stanley Cyclical Index of 30 stocks fell 1.4 percent to the lowest level since Nov. 30 on a closing basis. Caterpillar, the world's largest construction and mining- equipment maker, dropped 2.6 percent to $94.69. Dow Chemical decreased 2.6 percent to $32.80.
Energy shares lost the most among 10 groups in the S&P 500, declining 2.2 percent. Crude oil for September delivery fell 2.2 percent to $91.74 a barrel on the New York Mercantile Exchange. Chevron, the second-largest U.S. oil company, slid 2.3 percent to $101.10. Occidental Petroleum slumped 2.7 percent to $92.09.
No Silver Bullet
"This is what slow growth is going to feel like," said Charles Stamey, who helps manage $42 billion at Manning & Napier Advisors Inc. in St. Petersburg, Florida. "We're seeing lots of persistent headwinds that we are going to have to adjust to. There's not a silver bullet here. There's not a quick change in direction that we can anticipate. Yields are low. Stock prices are not overvalued. The stock market should look cheaper because we're not having the growth that we've historically had."
U.S. stocks have become a "strong buy" following declines in the past seven days, according to Barton Biggs, managing partner and co-founder of Traxis Partners LP in New York. Biggs spoke on Bloomberg Television's "InsideTrack" with Erik Schatzker and Deirdre Bolton.
"I do feel right now this is not the time to put out any shorts and I am very tempted to think this is a time to be buying stocks pretty aggressively," said Biggs, whose firm manages $1.4 billion.
Per-share earnings increased 17 percent and sales rose 12 percent among the S&P 500 companies that have released quarterly results since July 11, according to data compiled by Bloomberg. About 77 percent of the 363 companies have topped the average analyst profit forecast, the data show.
MasterCard rallied 8.1 percent to $322.78. Net income rose to $608 million, or $4.76 a share, from $458 million, or $3.49, in the same period a year earlier. The average estimate of 29 analysts surveyed by Bloomberg was for $4.23 a share.