Surprising JPMorgan loss hits stock market late

Thu May 10, 2012 6:17pm EDT

* Jobless claims drop in latest week
    * Euro zone to keep financing Greece until gov't formed
    * Cisco falls as forecast misses view
    * Dow up 0.2 pct, S&P up 0.3 pct, Nasdaq down 0.04 pct


    By Edward Krudy 
    NEW YORK, May 10 (Reuters) - U.S. stock index futures fell
sharply on Thursday evening as JPMorgan Chase & Co stunned
investors with news that its chief investment office had
incurred "significant mark-to-market losses" that it said could
"easily get worse." 
    JPMorgan's stock fell nearly 7 percent to $38.05 in
after-hours trading and dragged down shares across the entire
banking sector. Its executives called an extraordinary
conference call with analysts at 5 p.m. EDT where Chief
Executive Jamie Dimon said "egregious" mistakes had been made. 
    The news from JPMorgan comes at a difficult juncture for the
stock market as investors wrestle with heightened concerns about
Europe's debt crisis and signs are emerging that the U.S.
economic recovery may be starting to slow. 
    "When there's uncertainty, investors' first reaction is to
sell," said Michael Sheldon, chief market strategist at RDM
Financial in Westport, Connecticut. "This is not the kind of
news you expect from a high-quality management team and a
well-run bank." 
    S&P 500 futures fell 11.6 points and were below fair
value, a formula that evaluates pricing by taking into account
interest rates, dividends and time to expiration of the
contract. Nasdaq 100 futures fell 16.75 points.  
    If there is nothing to reassure investors between now and
the start of trade on Friday the weakness in likely to spill
over into the cash market. 
    Shares of JPMorgan's peers fell sharply after hours on the
news. Bank of America stock fell 2.9 percent to $7.48
and Goldman Sachs dropped 2.5 percent to $103.65, while
Citigroup lost 3.9 percent to $29.45. 
    The Chief Investment Office is the arm of the bank that
JPMorgan has said it uses to make broad bets to hedge its
portfolios of individual holdings, such as loans to
speculative-grade companies.  
     
    BIG SHOCK AFTER A TEPID DAY 
    The news came after a lackluster day for stocks. The Dow and
the S&P 500 eked out a modest gain as investors had dipped back
into the market after a weak stretch, but a disappointing
outlook from Cisco Systems capped gains.  
    Cisco Systems Inc lost 10.5 percent to $16.81, its
biggest percentage drop since February 2011, making it the
heaviest drag on the market. The network equipment maker
forecast profits below Wall Street's estimates, sparking
concerns about technology spending.  
    In a positive development, euro-zone officials said the
bloc's countries are prepared to keep financing Greece until the
country forms a new government.  
    The Dow's modest rise broke a six-day losing streak for the
blue-chip average. But the S&P 500 could not hold enough gains
to close above its April low. Still, the S&P has rebounded after
falling to a two-month low near 1,340 on Wednesday. 
    "You are seeing traders and investors come into some of
these very oversold sectors and buying on the dips. Then
suddenly, the people who are scared decide to start selling into
it," said Paul Mendelsohn, chief investment strategist at
Windham Financial Services in Charlotte, Vermont. 
    "That is what you are seeing today. You are seeing the
see-saw between people who are coming in, and adding positions
slowly, and people who are saying, 'The world is coming to an
end. I want out.'" 
    On Thursday, the Dow Jones industrial average rose
19.98 points, or 0.16 percent, to close at 12,855.04. The
Standard & Poor's 500 Index added 3.41 points, or 0.25
percent, to end at 1,357.99. But the Nasdaq Composite Index
 fell 1.07 points, or 0.04 percent, to close at 2,933.64. 
    The latest uncertainty surrounding Greece and the euro
zone's sovereign debt crisis helped spark a drop in the S&P 500
in five of the past seven sessions, sending the benchmark index
down 4 percent. While the region's difficulties persisted with
the political gridlock in Greece, investors used the market's
declines as a buying opportunity. 
    The CBOE VIX Volatility Index, used as a measure of
investor anxiety, fell 6.2 percent to 18.83. This week, the VIX
closed above 20 for the first time in a month in a sign of
growing caution. 
    The number of Americans applying for jobless benefits fell
last week, but from an upwardly revised figure from the previous
week. The report follows last month's nonfarm payrolls report,
which showed weak employment growth in April.  
    Signs of softness in the U.S. economy recently have led some
investors to err on the side of caution and cut back on sectors
exposed to the vicissitudes of the economic cycle. 
    The Standard & Poor's 500 could fall 5 percent to 7 percent
from its April high, and see "several months" of choppy trading,
said Citigroup's chief U.S. equity strategist Tobias Levkovich.
    "I don't see that as unreasonable," he said. "The solutions
to some of these things are not imminent. People forgot them and
got a little bit too excited."  
    On the plus side, News Corp rose after its profit
beat expectations late Wednesday and it announced a $5 billion
stock buyback. Its stock climbed 4.9 percent to $20.32.
  
    With 449 of the S&P 500 companies reporting results through
Thursday morning, 66.4 percent exceeded estimates, according to
Thomson Reuters data, compared with more than 80 percent at the
start of earnings season. 
    Volume was 6.75 billion shares on the New York Stock
Exchange, the Nasdaq and the NYSE Amex, just above the 50-day
moving average of 6.65 billion. 
    On the NYSE, more than three shares rose for every two that
fell, while for the Nasdaq, about seven stocks advanced for
every five that fell.