U.S. Stocks Fall as Banks, Commodity Shares Drop

By Rita Nazareth

April 20 (Bloomberg) -- U.S. stocks declined, indicating the market may retreat following six weeks of gains, as concern grew that credit losses are worsening and lower commodity prices dragged down energy and material producers.

Bank of America Corp., the lender that’s fallen 72 percent in the past year, tumbled 11 percent as rising charge-offs for uncollectible loans overshadowed better-than-estimated earnings. Citigroup Inc. dropped 12 percent as Goldman Sachs Group Inc. said the bank’s credit losses are growing at a “rapid rate.” U.S. Steel Corp. and Halliburton Co. declined as oil and industrial metal prices decreased.

The Standard & Poor’s 500 Index slid 1.9 percent to 853.48 at 9:35 a.m. in New York. The Dow Jones Industrial Average lost 130.47 points, or 1.6 percent, to 8,000.86. The Russell 2000 Index of small companies fell 2.1 percent.

“We’ve had a big rally for six weeks and I wouldn’t be surprised to a see consolidation phase that could last anywhere from two to four weeks,” said Bruce Bittles, the Nashville-based chief investment strategist at Robert W. Baird & Co., which oversees $16 billion. “Financials had a bigger run than the market and certainly they are not out of the woods as well as the rest of the economy.”

The S&P 500 wrapped up its steepest six-week gain since 1938 on April 17, as profits at Goldman Sachs and JPMorgan Chase & Co. ignited gains in bank shares. The rally may falter as a prolonged recession dents corporate earnings, George Hoguet, global investment strategist at Boston-based State Street Global Advisors Inc., said in an April 18 interview.

Leading Indicators

The S&P 500 surged 29 percent from a 12-year low on March 9 through last week as banks including Citigroup said they were profitable at the start of the year and expectations grew that the worst of a global recession is past. The index of U.S. leading indicators for March may today show the longest economic slowdown in the post-World War II era will start loosening its grip in coming months.

The gauge of the outlook over the next three to six months dropped 0.2 percent following a 0.4 percent February decrease, according to the median estimate of 40 economists surveyed by Bloomberg News. The New York-based Conference Board’s index is due at 10 a.m. Washington time.

Analysts estimate that profits at S&P 500 companies decreased for the seventh straight quarter in the January to March period, the longest stretch of declines since at least the Great Depression.

‘Pullback’

“We’re likely to see a pullback in stock markets as earnings disappoint,” Hoguet said in an interview in Shanghai. “We are undergoing a severe shock and the global economy will take several quarters to get back to trend growth.” State Street Global Advisors oversees $1.4 trillion.

Bank of America fell 11 percent to $9.43 even after saying first-quarter net income more than tripled on gains from home refinancing and trading.

Citigroup declined 45 cents, or 12 percent, to $3.20. The bank’s credit losses are growing at a “rapid rate,” undermining Chief Executive Officer Vikram Pandit’s efforts to stabilize the company, according to Goldman Sachs.

While Citigroup posted first-quarter net income of $1.6 billion last week, the New York-based bank suffered an “underlying” loss of 38 cents a share, Richard Ramsden, a Goldman Sachs analyst, wrote in a research note dated yesterday. He repeated a “sell” rating on the stock.

American International Group Inc. fell 7.4 percent to $1.50. The insurer bailed out by the U.S. agreed to sell preferred stock and warrants for common shares to the government in return for access to $29.8 billion.

Stress Tests

Obama administration officials signaled there may be no need to request more financial-rescue funds from Congress as several banks plan to return taxpayer money and others are pushed to tap private markets first.

The White House chief of staff, Rahm Emanuel, said while he had not seen results of stress tests on the 19 biggest banks, he believed the White House won’t have to request more bailout funds.

“The first resort for more capital is going to the private markets,” by issuing new equity or swapping some liabilities into stock that dilutes other stakeholders, National Economic Council Director Lawrence Summers said.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net.