Stocks fall amid Europe downgrade

U.S. stocks retreated, snapping a four-day rally for the Standard & Poor’s 500 Index, as euro- region governments braced for credit downgrades by S&P and after JPMorgan Chase & Co.’s profit slumped 23 percent.

All 10 groups in the S&P 500 declined as financial, industrial and technology gauges slid at least 0.7 percent. JPMorgan, the largest U.S. bank by assets, dropped 2.5 percent. Bank of America Corp., Intel Corp. and Alcoa Inc. lost more than 1.3 percent to pace declines among the biggest companies. Eastman Kodak Co. tumbled 23 percent as it is said to be in talks with Citigroup Inc. to provide bankruptcy financing.

The S&P 500 slid 0.5 percent to 1,289.09 as of 4 p.m. New York time, paring a drop of as much as 1.4 percent. The Dow Jones Industrial Average slid 48.96 points, or 0.4 percent, to 12,422.06. The market will be closed on Monday for a holiday.

“People are keeping a very careful eye on Europe and they are nervous with earnings,” Mark Bronzo, who helps manage $23.4 billion at Security Global Investors in Irvington, New York, said in a telephone interview. “It’s critical that any downgrades in Europe do not involve Germany. Most people expected France to be downgraded,” he said. In the U.S., “JPMorgan’s earnings were OK, but the quality is not good.”

Stocks slumped as France’s AAA rating will fall by one level at S&P, Finance Minister Francois Baroin told France 2 television Friday. Germany will keep its top rating, a person familiar with the matter said. Greece’s creditor banks broke off talks after failing to agree with the government about how much money investors will lose by swapping their bonds.

Economic data

Concern about potential downgrades overshadowed data showing that confidence among U.S. consumers rose more than forecast in January to the highest level in eight months, a sign household spending may hold up early this year. Separate figures showed that the U.S. trade deficit widened more than forecast in November as American exports declined and companies stepped up imports of crude oil and automobiles.

The S&P 500 capped the second straight week of gains amid lower borrowing costs at auctions in Europe. Investors also watched fourth-quarter results. S&P 500 companies, which beat estimates in the previous 11 quarters, are forecast to report a 4.6 percent increase in per-share profit during the September- December period, according to projections compiled by Bloomberg.

Financial companies slumped 0.8 percent, the most among 10 groups in the S&P 500. JPMorgan dropped 2.5 percent to $35.92. Investment-banking revenue declined 30 percent to $4.36 billion from a year earlier as many clients stayed on the sidelines on concern the European debt crisis would lead to a global economic slowdown.

‘Disruption’

“Financials would have to participate for the market to do well,” James Dunigan, who helps oversee $104 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a telephone interview. “We’ll look to see whether all that disruption in Europe had an effect in overall earnings reports. If that bleeds over into our export numbers, it may have an impact on the earnings side.”

Bank of America lost 2.7 percent to $6.61, while Morgan Stanley retreated 3.2 percent to $16.63. Citigroup fell 2.7 percent to $30.74. Goldman Sachs Group Inc. slid 2.2 percent to $98.96.

The Morgan Stanley Cyclical Index retreated 1.1 percent amid concern about global economic growth. The Dow Jones Transportation Average dropped 0.6 percent. Intel, the world’s biggest chipmaker, declined 2.4 percent to $25.14. Alcoa slumped 1.3 percent to $9.80.

Kodak tumbles

Kodak tumbled 23 percent to 52 cents. The imaging company may seek protection from creditors within weeks and then hold an auction to sell its patent portfolio, said three people familiar with the matter, who asked not to be identified because the talks are private. Kodak may seek about $1 billion in so-called debtor-in-possession financing, though terms may change, two people said.

Patriot Coal Corp. declined 13 percent to $7.87. The U.S. mining company said it will idle production in West Virginia because of a weaker market for coal used by steelmakers. Other coal producers fell. Alpha Natural Resources Inc. dropped 10 percent, the most in the S&P 500, to $20.19. Arch Coal Inc. retreated 9.8 percent to $14.13.

Charles Schwab Corp. lost 2.5 percent to $12.16. The independent, San Francisco-based brokerage was downgraded to “market perform” from “outperform” at Wells Fargo & Co.

BankUnited Inc. rallied 5.8 percent to $24.48 as it is exploring a sale one year after its private-equity owners took the lender public, according to a person with knowledge of the matter. BankUnited is working with Goldman Sachs Group Inc., said the person, who declined to be identified because the discussions are private. The company could still decide against a sale.

Stock investors shouldn’t get used to the relative calm that markets are now showing, according to Andrew Garthwaite, a global equity strategist at Credit Suisse Group AG.

Volatility is likely to rise this year, Garthwaite wrote yesterday in a report. He attributed the outlook to excessive borrowing in developed economies, which ensures that investors will be “abnormally sensitive” to shifts in economic growth and government policy, he added.

“Sentiment in the market has clearly changed over the past three months,” wrote Garthwaite, who is based in London.

Even so, developed-country debt is still $8 trillion too high, the report said. Garthwaite came up with that estimate by comparing the borrowing relative to gross domestic product with a figure based on the debt-to-GDP ratio’s trend during the past three decades.

The need to reduce this burden creates “a considerable amount of tail risk,” or potential for unlikely stock-market outcomes, the report said. He mentioned 11 possible surprises for this year. One was a breakup of the euro region, which he estimated would send the S&P 500 falling to 800, or 38 percent less than Thursday’s close.