By Rita Nazareth - Oct 31, 2011 9:58 PM GMT+0700
Oct. 31 (Bloomberg) -- Keith Wirtz, chief investment officer of Fifth Third Asset Management Inc., talks about the U.S. stock market and investment strategy. Wirtz speaks with Betty Liu and Dominic Chu on Bloomberg Television's "In the Loop." (Source: Bloomberg)
U.S. stocks declined, trimming the biggest monthly advance since 1987 in the Standard & Poor’s 500 Index, on concern European leaders will struggle to raise funds to contain the region’s sovereign debt crisis.
Morgan Stanley and Citigroup Inc. dropped more than 5.5 percent as European banks fell and MF Global Holdings Ltd. filed for bankruptcy. Alcoa Inc. and Ford Motor Co. slumped at least 1.2 percent to pace losses in companies most-tied to the economy. Yahoo! Inc. slid 5 percent as it is said to be leaning toward selling Asian assets and redistributing proceeds to shareholders, rather than selling itself.
The S&P 500 dropped 1.2 percent to 1,269.19 as of 10:57 a.m. New York time. The gauge rose 12 percent in October and was poised to snap a five-month drop. The Dow Jones Industrial Average lost 135.78 points, or 1.1 percent, to 12,095.33.
“We’re not out of the woods yet,” Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, said in a telephone interview. His firm manages $300 billion. “Europe did get a rescue that buys them more time, but they are not anywhere near a resolution to their crisis. In addition, we’ve been on a buying stampede. The market was due for a pullback.”
Stocks rose last week after European leaders agreed to expand the region’s bailout fund and American economic growth accelerated. Earlier this month, the index came within 1 percent of extending a drop from its peak in April to 20 percent, the common definition of a bear market. Since then, it has risen 15 percent.
Role of ‘Savior’
China can’t play the role of “savior,” the official Xinhua news agency said yesterday, as investors awaited the country’s response to Europe’s request for money to boost its bailout fund. Japanese Finance Minister Jun Azumi said today the government took unilateral steps to weaken the yen. Group of 20 leaders will gather Nov. 3-4 in Cannes, France, while central bankers from Australia, the U.S. and Europe will hold interest- rate policy meetings this week.
Wilbur Ross said European banks will need new capital before they can sell assets to meet requirements, the Financial Times said, citing an interview with the billionaire chairman of private-equity firm WL Ross & Co.
The KBW Bank Index dropped 2.4 percent. MF Global, the holding company for the broker-dealer run by former New Jersey governor and Goldman Sachs Group Inc. co-chairman Jon Corzine, filed for bankruptcy after making bets on European sovereign debt. Morgan Stanley fell 5.5 percent to $18.25. Citigroup declined 6.3 percent to $32.02.
‘Won’t Be Evident’
“The extended kind of rally we’re looking for from stocks won’t be evident until we see at least the financial sector show improvement,” Keith Wirtz, who oversees $16.7 billion as chief investment officer at Fifth Third Asset Management in Cincinnati, said in a Bloomberg Television interview. “The financials will have to be part of the play for an extended run in stocks to occur.”
The Morgan Stanley Cyclical Index of companies most-tied to the economy decreased 1.7 percent. The Dow Jones Transportation Average, a proxy for the economy, slid 1.3 percent. Alcoa, the largest U.S. aluminum producer, dropped 4 percent to $11.11. Ford erased 1.2 percent to $11.86.
The Institute for Supply Management-Chicago Inc. said today its business barometer decreased to 58.4 in October from 60.4 the prior month. A level of 50 is the dividing line between expansion and contraction. Economists forecast the gauge would drop to 59, according to the median of 55 estimates in a Bloomberg News survey. Projections ranged from 56 to 62.5.
Yahoo Slumps
Yahoo decreased 5 percent to $15.73. The Asian asset sale is emerging as the most likely option for Yahoo and would let the Internet company eventually pay a special dividend or buy back shares, according to five people familiar with the situation, who declined to be identified because the talks are private. Dana Lengkeek, a spokeswoman for Yahoo, declined to comment.
Chevron Corp. erased 2.6 percent to $106.82 after being cut to “neutral” from “buy” at Bank of America Corp., which cited valuation concern. SanDisk Corp., the biggest maker of flash-memory cards, lost 3.2 percent to $51.67. Sterne Agee & Leach Inc. downgraded its recommendation for the shares to “neutral” from “buy.”
Barton Biggs, co-founder of Traxis Partners LP, said his hedge fund’s net long position rose to about 80 percent from 65 percent earlier this month and that the U.S. stock market rally will continue. Biggs said he favors technology stocks, as well as large cap industrial companies, such as Caterpillar Inc. and General Electric Co.
‘Pretty Bullish’
“I’m pretty bullish,” Biggs said today in an interview with Betty Liu on Bloomberg TV’s “In the Loop” program. “I think this rally is about positioning and will continue for a while.”
American companies are beating Wall Street profit estimates for the 11th straight quarter, enough to revive a bull market that analysts say will eclipse any rally in the past 12 years. Price targets for companies in the index from more than 10,000 estimates suggest the S&P 500 will advance 13 percent to 1,447.93 in a year.
Companies from Google Inc. to Peabody Energy Corp. are delivering higher earnings at a time when Bill Gross, the co- chief investment officer of Pacific Investment Management Co., is warning that Europe’s debt crisis will spur a recession. While more than $6.3 trillion has been erased from global equities since May, analyst forecasts imply the benchmark measure will post its biggest rally since the 1990s technology bubble, when the gain since March 2009 is included.
‘Really Decent’
“This is looking like it’s going to be a really decent quarter,” Warren Koontz, head of U.S. large-cap value stocks at Loomis Sayles & Co. in Boston, which manages about $150 billion, said in an Oct. 25 interview. “Valuations are very, very low relative to history, and you don’t have to make heroic assumptions on multiples to get reasonable returns.”
The S&P 500 traded at 11.7 times reported income on Oct. 3, within 14 percent of its price-earnings ratio at the bottom of the financial crisis in March 2009, Bloomberg data show. The index gained 3.8 percent last week.
To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
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