U.S. Stocks Retreat as Profit Outlook Offsets Stimulus Plans

By Lynn Thomasson

Dec. 22 (Bloomberg) -- U.S. stocks fell, erasing last week’s advance, as a deteriorating outlook for corporate earnings and real estate offset expectations that government efforts to revive the economy will succeed.

Monsanto Co. lost 7.5 percent after Goldman Sachs Group Inc. said the recession will hurt profit at the world’s largest producer of seeds. Walgreen Co., the second-biggest U.S. drugstore chain, sank 4.2 percent after posting the slowest sales growth in at least 18 years. MetLife Inc., the insurer invested in $36 billion worth of commercial mortgages, tumbled 12 percent as analysts said the number of U.S. non-residential properties at risk of default may triple.

“Demand is going to continue to be weak,” James Dunigan, managing executive of investments at PNC Wealth Management in Philadelphia, which oversees $63 billion, told Bloomberg Television. “Consumers are no doubt retrenching until they see some signs the economy is stabilizing.”

The Standard & Poor’s 500 Index retreated 1.8 percent to 871.63, wiping out last week’s 0.9 percent gain. The Dow Jones Industrial Average slipped 59.42 points, or 0.7 percent, to 8,519.69. The Russell 2000 Index of small companies declined 2.3 percent to 475.07. The MSCI World Index of 23 developed markets slumped 1.6 percent to 892.73.

Today’s losses followed the S&P 500’s first back-to-back weekly gains since September, spurred by the Federal Reserve slashing interest rates to a record low and President George W. Bush granting emergency loans for General Motors Corp. and Chrysler LLC. All but 87 stocks in the S&P 500 dropped today.

Trading Slows

Financials, consumer companies reliant on discretionary spending and raw-material producers led the S&P 500’s decline, with each industry group falling more than 3 percent.

About 8.9 billion shares changed hands on all U.S. exchanges, 15 percent less than the three-month daily average.

Walgreen retreated $1.10 to $24.98 after first-quarter profit trailed estimates and the company said it would spend less on new locations. Revenue climbed 6.6 percent.

GM sank 22 percent to $3.52, erasing its surge on Dec. 19, after Credit Suisse Group AG said stockholders may be “wiped out” by the restructuring needed to win a U.S. bailout.

Toyota American depositary receipts lost 5.4 percent to $60.88. The world’s second-largest automaker forecast its first operating loss in 71 years as the global recession decimates car demand and the yen strengthens.

‘Substantial Reversal’

Monsanto declined $5.34 to a one-month low of $66.29 after being cut to “neutral” from “buy” at Goldman Sachs. The slide in commodities, such as nitrogen and phosphate, has triggered a “substantial reversal” in prices for seeds and fertilizer, the analysts said.

MetLife fell the most in three weeks, dropping $4.53 to $32.88. The company’s commercial mortgage portfolio accounts for about 12 percent of invested assets.

U.S. commercial properties at risk of default could triple if rental income from office, retail and apartment buildings drops by even 5 percent, a likely possibility given the recession, according to research by New York-based Reis Inc.

Real-estate stocks in the S&P 500 slumped 3.7 percent collectively. Boston Properties Inc., the largest U.S. office landlord, fell 5.5 percent to $53.65. The 15 homebuilders in S&P indexes lost 5.1 percent as a group.

Companies in the S&P 500 are projected to report earnings declines through the second quarter of 2009, extending the streak of decreasing profits to eight quarters, the longest ever. The index trades at an average price-to-earnings ratio of 19.2, or 27 percent less than the four-year high of 26.2 reached on Aug. 15.

VIX Declines

The Chicago Board Options Exchange Volatility Index slipped 0.8 percent to 44.56 for a fifth consecutive decline, the longest stretch since July. The index measures the cost of using options as insurance against declines in the S&P 500.

“When volatility subsides, the VIX will decline and right now we’ve got a market that’s not doing very much of anything,” said Warren West, the head trader at Greentree Brokerage Services Inc. in Philadelphia.

The S&P 500 posted a closing gain or loss greater than 3 percent on 11 days in November, compared with five days this month.

Worthington Industries Inc. slumped 14 percent to $10.63 for the biggest loss in almost three months. Goldman Sachs said the largest U.S. maker of steel frames for cars may violate debt covenants and halt its dividend after the recession battered carmakers and real-estate developers, the company’s biggest customers.

Christmas Week Gains

The U.S. stock market historically performs better during the Christmas week, Bespoke Investment Group LLC said. The Dow average has risen an average 0.7 percent during the holiday season, compared with a 0.1 percent advance for all 4-day periods, according to data since 1900 from the Harrison, New York-based research firm.

The S&P 500 may rebound 18 percent next year, Barron’s reported, citing a survey of 12 strategists and chief investment officers. The gains may come even as the respondents expect the economy to continue to contract, Barron’s said.

“We’re going to have to start looking at these earnings reports and we’re going to have to deal with the ongoing, severe recession,” Ron Rimkus, a money manager for Raleigh-based BB&T Asset Management, which oversees $17 billion, told Bloomberg Television. “I wouldn’t be surprised to see some weakness in January.”

3 Million Jobs

Macy’s Inc., Tiffany & Co. and J.C. Penney Co. fell more than 5.7 percent as shoppers searched for bargains in the final week before Christmas and stores faced what may be the worst holiday season in 40 years. S&P 500 retailers slid 3.9 percent as a group.

President-elect Barack Obama is boosting his stimulus package with a goal of creating or saving 3 million jobs over two years after the U.S. entered a recession and the S&P 500 sank 40 percent in 2008. His target was revised from a previously announced goal of 2.5 million jobs.

The U.S. may have lost 488,000 jobs this month, according to a Bloomberg poll of economists before the report is released in January. The odds that the U.S. will sink into a depression in 2009 are 25 percent, according to trading on the prediction market run by Dublin-based Intrade.

American International Group Inc. added 0.6 percent to $1.61. The insurer will sell Hartford Steam Boiler for $742 million, about a third less than what it paid for it eight years ago, as it tries to repay loans tied to the company’s $152.5 billion government rescue.

The TED spread, a gauge of banks’ willingness to lend, slipped below 150 basis points for the first time since before the collapse of Lehman Brothers Holdings Inc. in September amid speculation a U.S. Federal funds rate near zero and promises of further government cash will help unfreeze credit.

The London interbank offered rate, or Libor, that banks say they charge each other for three-month dollar loans fell three basis points, or 0.03 percentage point, to 1.47 percent, the British Bankers’ Association said today.

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.