By Rita Nazareth and Julia Leite - Jul 9, 2012 10:05 PM GMT+0400
U.S. stocks fell, giving benchmark indexes the longest slump in more than a month, after a rally in Spanish bond yields above 7 percent intensified concern about Europe’s crisis and as investors awaited Alcoa (AA) Inc.’s results.
Alcoa, which begins the second-quarter earnings season after the market close, slid 0.6 percent. Exxon Mobil Corp. (XOM) and DuPont Co. dropped more than 1.3 percent to pace losses in the biggest companies. Payment networks Visa Inc. (V) and MasterCard (MA) Inc. slumped at least 1.1 percent after being downgraded at UBS AG. Amerigroup Corp. (AGP)surged 38 percent as WellPoint (WLP) Inc. agreed to buy the managed health-care company for $4.9 billion in cash.
Traders work on the floor of the New York Stock Exchange in New York. Photographer: Scott Eells/Bloomberg
July 9 (Bloomberg) -- Michael Holland, chairman of Holland & Co., talks about the outlook for quarterly corporate earnings, investment strategy for stocks and JPMorgan Chase & Co.'s trading loss. Holland speaks with Betty Liu, Dominic Chu, Sheila Dharmarajan, Josh Lipton and Alix Steel on Bloomberg Television's "In the Loop." (Source: Bloomberg)
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The Standard & Poor’s 500 Index slid 0.3 percent to 1,351.10 at 2:03 p.m. New York time, dropping 1.7 percent in three days. The Dow Jones Industrial Average lost 48.63 points, or 0.4 percent, to 12,723.84. Trading in S&P 500 companies was 24 percent below the 30-day average at this time of day.
“It’s very concerning,” said Jeff Savage, regional chief investment officer for Wells Fargo Private Bank in Portland, Oregon. His firm manages $169 billion. “Seven percent is not a sustainable level of interest rates for Spain. That’s scary stuff. We can’t have one of our best trading partners going through terrible economic times and not having an effect on U.S. corporate earnings,” he said, referring to Europe.
Stocks joined a global slump as the yield on Spain’s 10- year bond rose above the threshold that prompted bailouts in Greece, Ireland and Portugal. German Finance MinisterWolfgang Schaeuble dismissed a rapid move toward direct bank recapitalization by the European rescue fund, limiting the tools for shoring up Spanish banks.
Earnings Season
Investors also awaited the start of the earnings season as analysts’ estimates signal the first year-over-year profit decline for S&P 500 companies since 2009. Forecasts compiled by Bloomberg show a 1.8 percent drop in profits in the second quarter. Revenue is projected to increase by 2.5 percent.
Alcoa, the largest U.S. aluminum producer, may report an 84 percent decline in second-quarter earnings as the eighth straight year of surplus global production drives down the price of the metal. The shares fell 0.6 percent to $8.67.
“People are too pessimistic about earnings,” said Paul Zemsky, the New York-based head of asset allocation for ING Investment Management. His firm oversees $160 billion. “We may get some better price action in the U.S. as results come in.”
Today’s decline extended this month’s drop in the S&P 500 to 0.8 percent. Stocks fell last weekas jobs data heightened concern about a slowing economy and Europe’s efforts to tame its debt crisis disappointed investors.
Biggest Losses
Eight out of 10 groups in the S&P 500 retreated as commodity and consumer discretionary shares had the biggest losses. The Morgan Stanley Cyclical Index of companies most- dependent on economic growth dropped 0.8 percent. DuPont, a U.S. chemicals producer, slumped 2.6 percent to $47.65. Exxon Mobil fell 1.3 percent to $83.71.
Visa retreated 1.1 percent to $123.91, while MasterCard declined 1.8 percent to $433.70. UBS analyst John Williams changed his rating on the firms’ shares today to sell from neutral, citing weaker U.S. economic data and a global slowdown in growth. Williams said this could harm Visa and MasterCard, which are among the top three performing shares in the S&P’s Information Technology Index (S5INFT) since 2011.
The companies’ shares “sit near all-time highs despite exposure to a weakening global consumer spending backdrop, which makes a slowdown in key metrics inevitable over the next 3 to 6 months,” Williams wrote. “Multiple data points indicate global growth is slowing -- clear negatives for the shares.”
TD Ameritrade
TD Ameritrade Holding Corp. (AMTD) slumped 2.5 percent to $16.38 as declining growth prospects prompted Goldman Sachs Group Inc. to downgrade the Omaha, Nebraska-based online brokerage to sell from neutral.
Bridgepoint Education Inc. (BPI) plunged 25 percent to $16.22. The for-profit college company that owns Ashford University tumbled after Ashford’s accreditation application was denied by a regional accreditor.
Navistar International Corp. (NAV) sank 2.9 percent to $23.72. The maker of International brand trucks dropped after Bloomberg Industries said truckmakers will need to reduce production in the second half of the year.
“There has been a significant mismatch between incoming truck orders, build rates and retail sales during 2012,” Bloomberg Industries said in a report today. “New order cancellations for heavy-duty trucks in North America rose to 10.1 percent in May, the second-highest level since 2009,” Bloomberg Industries said in a related report.
A measure of health-care stocks had the biggest gain among 10 S&P 500 groups, rising 0.4 percent, amid takeover optimism.
43% Above
Amerigroup surged 38 percent to $88.90. The stockholders will receive $92 a share. The price is 43 percent above the closing level of Amerigroup in New York Stock Exchange trading on July 6. The acquisition will make WellPoint the top private manager of Medicaid benefits in the U.S., with 4.5 million members in the government-sponsored programs. WellPoint, the second-biggest U.S. health plan, added 3.5 percent to $62.
The deal is also boosting the value of other insurers focusing on Medicaid. WellCare Health Plans Inc. (WCG) soared 17 percent to $61.78. Molina Healthcare Inc. (MOH) rallied 18 percent to $27.25.
Apple Inc. (AAPL) rose 1.2 percent to $613.05. The world’s most valuable company may sell 4 million to 6 million still-to-be- released smaller iPad tablets in this year’s fourth-quarter holiday season, according to Piper Jaffray Cos.
Tablet Sales
“We believe the smaller iPad, while potentially cannibalizing 10 percent of full size iPad sales, could take 30 percent of total Android tablet sales in the December quarter,” Gene Munster, an analyst for Minneapolis-based Piper Jaffray, said today in a note to investors. Munster rates Apple overweight, the equivalent of a buy recommendation.
Boeing Co. (BA) added 0.4 percent to $74. The company opened the Farnborough air show with a $7.2 billion order from Steven Udvar-Hazy’s Air Lease Corp., the first purchase by a lessor for the planemaker’s new, fuel-efficient 737 MAX.
The same securities analysts warning of the first decline in quarterly earnings since 2009 are also more bullish than ever on U.S. stocks.
A total of 247 companies in the S&P 500 have more buy ratings than sells and holds, a record in Bloomberg data starting in 2000. Bullish recommendations have been expanding even as Wall Street firms cut their forecast for second-quarter net income in the U.S. to a decrease of 1.8 percent from a gain of 2 percent in April, more than 10,000 estimates compiled by Bloomberg show.
Bulls vs Bears
Bears say rising equity volatility, declining profits and the approaching U.S. presidential election mean the 4.5 percent drop in the S&P 500 since April will continue. Bulls say analysts are advising clients to buy because earnings are still on track to reach a record this year and the index is trading 16 percent below its average valuation since the 1950s.
“My picks aren’t based on one quarter,” Howard Rubel, a New York-based equity analyst at Jefferies & Co., said in a July 5 phone interview. “It’s not always captured in a headline how many pieces of judgment one needs to incorporate into a stock recommendation, and a quarterly earnings report is only one item. You have to look at things over a period of time.”
To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net;
Julia Leite in New York at jleite3@bloomberg.net
To contact the editor responsible for this story: Lynn Thomasson atlthomasson@bloomberg.net
