David Sokol, former Midamerican Energy Chairman David Sokol. Photographer: Daniel Acker/Bloomberg
March 31 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks fell, trimming the biggest first-quarter rally for the Standard & Poor’s 500 Index since 1998, as a Federal Reserve official said interest rates may need to rise and concern about Europe’s debt crisis grew. Bloomberg's Julie Hyman also speaks. (Source: Bloomberg)
March 31 (Bloomberg) -- Anthony Dwyer, chief equity strategist at Collins Stewart, talks about the outlook for Federal Reserve monetary policy. Dwyer also discusses tomorrow's U.S. jobs report for March, the U.S. economy and stocks. He speaks with Matt Miller, Adam Johnson, Julie Hyman and Sheila Dharmarajan on Bloomberg Television's "Street Smart." (Source: Bloomberg)
U.S. stocks fell, trimming the biggest first-quarter rally for the Standard & Poor’s 500 Index since 1998, as a Federal Reserve official said interest rates may need to rise and concern about Europe’s debt crisis grew.
Berkshire Hathaway Inc. (BRK/A) lost 2.1 percent as David Sokol, once a candidate to succeed Warren Buffett as the head of the investment firm, resigned. CarMax Inc. (KMX) slumped 7.2 percent after the largest U.S. seller of used cars said margins shrunk. Home Depot Inc. (HD), Intel Corp. and American Express Co. (AXP) fell more than 1.3 percent to lead losses in the Dow Jones Industrial Average.
The S&P 500 fell 0.2 percent to 1,325.83 at 4 p.m. in New York and advanced 5.4 percent during the January-March period. The Dow average dropped 30.88 points, or 0.3 percent, to 12,319.73 today. Stocks extended losses late in the session as Fed Bank of Minneapolis President Narayana Kocherlakota told the Wall Street Journal that policy makers may have to lift rates to fight inflation.
“That kind of brought the market back to reality,” Michael Nasto, senior trader at U.S. Global Investors Inc., which manages $3 billion in San Antonio, Texas, said of Kocherlakota’s comments. “We had a negative tone set. It’s another example of people being a little bit timid about going to the market simply because of what they’re hearing.”
Equities fell earlier after Irish regulators instructed four banks to raise 24 billion euros ($34 billion) in additional capital following a stress test on the nation’s lenders. Portugal reported a budget deficit of 8.6 percent of gross domestic product last year, higher than a government target of about 7 percent. In the U.S., jobless claims topped economist estimates a day before the Labor Department’s monthly labor data.
First-Quarter Gains
The S&P 500 usually climbs further following first-quarter gains similar to this year’s, according to Birinyi Associates Inc. The index has risen about 7.1 percent in the final three quarters of years following January-March gains of 5 percent to 7 percent, Birinyi data dating back to 1928 show.
The benchmark gauge of U.S. stocks is trading for about 13.7 times its companies’ estimated operating earnings, compared with an average multiple of 18.1 times reported profits over the last decade, data compiled by Bloomberg show.
Jobless claims fell by 6,000 to 388,000 in the week ended March 26, the Labor Department said. The median forecast of economists in a Bloomberg survey was for a decline to 380,000 claims. The report comes before tomorrow’s monthly government report on non-farm payrolls, expected to show that the economy added 190,000 jobs in March.
Economy Watch
Other reports showed U.S. factory orders unexpectedly fell 0.1 percent after a 3.3 percent gain in January, the Commerce Department said today. The Institute for Supply Management- Chicago Inc.’s business barometer fell in March. The Bloomberg Consumer Comfort Index rose for the first time in five weeks to minus 46.9 in the period ended March 27 from a seven-month low of minus 48.9 the prior week.
Berkshire Hathaway Class B shares fell 2.1 percent to $83.63. Sokol bought about 96,000 Lubrizol Corp. shares in January before recommending the company as a takeover target, according to a statement late yesterday from Buffett, Berkshire’s chairman and chief executive officer. Sokol had initiated confidential talks with Lubrizol the month before. Berkshire agreed to buy the firm for $9 billion on March 14.
CarMax slumped 7.2 percent to $32.10, its biggest decline of the year. The largest U.S. seller of used cars said gross margin for the fourth-quarter fell to 14.2 percent from 14.5 percent in the year-ago period.
Dow Movers
Home Depot, the largest U.S. home-improvement retailer, fell 1.4 percent to $37.06. American Express, the biggest credit-card issuer by purchases, slid 1.6 percent to $45.20.
Intel Corp. (INTC), the world’s largest chipmaker, fell 1.4 percent to $20.18 after FBR Capital Markets said in a note to clients the world’s largest chipmaker faces slower-than-expected growth in the personal-computer market during the second quarter and its Sandy Bridge products are not stimulating as much demand as anticipated.
American International Group Inc. (AIG) fell 2.5 percent to $35.14 after the Federal Reserve Bank of New York said it has declined the insurer’s $15.7 billion offer to purchase the residential-mortgage backed securities owned by the central bank’s Maiden Lane II LLC rescue fund.
U.S. Steel, Rowan
U.S. Steel Corp. declined 4.2 percent to $53.94 after the Pittsburgh-based company was added to Deutsche Bank AG’s short- term sell list.
Rowan Cos. advanced 3 percent to $44.18 after Moody’s changed the offshore driller’s outlook to “stable” from “negative.”
CF Industries Holdings Inc. (CF), the world’s second-largest maker of nitrogen fertilizer, rallied 3.2 percent to $136.79. The U.S. Department of Agriculture reported corn acreage this year will be the second largest since 1944 as increasing demand for food and fuel cuts stockpiles worldwide.
XL Group Plc (XL) added 4 percent to $24.60 after Egan-Jones Ratings Co. said the insurer stands good chance of a takeover by Berkshire Hathaway or other stronger peers.
The rebound in the S&P 500 isn’t over, according to Bay Crest Partners LLC. When the S&P 500 slipped to 1,249.05 on March 16, the weekly survey from the American Association of Individual Investors showed the next day that the ratio of bulls to bears fell to 0.71, the lowest since Aug. 26, Bloomberg data show. Christian Bendixen, director of technical research at Bay Crest, said the increase in pessimism may reverse and help the S&P 500 climb to 1,425, or 7.3 percent above yesterday’s close.
“We have some good reasons to want to own stocks,” said Perry Piazza, director of investment strategy at Contango Capital Advisors in San Francisco, who helps oversee about $3.3 billion of assets. “We know the energy and materials sectors are doing really well, we know the dollar is weak, we know that individual investors are interested again in coming back to the stock market. I don’t think it’s time to take your chips off the table yet.”
To contact the reporter on this story: Cecile Vannucci in New York at cvannucci1@bloomberg.net.
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
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