By Rita Nazareth - Oct 17, 2011 9:49 PM GMT+0700
U.S. stocks fell, after the biggest weekly gain for the Standard & Poor’s 500 Index since 2009, as Wells Fargo & Co. (WFC) slumped and a German government spokesman damped optimism of a quick fix to Europe’s debt crisis.
Gauges of financial and raw material companies had the biggest declines in the S&P 500 among 10 groups, falling at least 2.5 percent. Wells Fargo, the largest U.S. home lender, lost 6.2 percent as third-quarter revenue dropped and margins narrowed. Alcoa Inc. (AA) and 3M Co. (MMM) slumped more than 2.8 percent to pace losses among companies most-tied to the economy. Gannett Co. dropped 8.6 percent as print-advertising revenue slid.
The S&P 500 slipped 1.2 percent to 1,209.40 at 10:48 a.m. New York time. The Dow Jones Industrial Average retreated 145.92 points, or 1.3 percent, to 11,498.57 today.
“It’s optimism punctuated by reality,” Hayes Miller, the Boston-based head of asset allocation in North America at Baring Asset Management Inc., which oversees $51.6 billion. “It’s not in the Germans’ interest to offer up a bailout package on the terms that the market would like. The market wants the resolution, but it shouldn’t be forthcoming.”
The S&P 500 rose 6 percent last week amid optimism over corporate earnings and steps by European leaders to support the region’s banks. It has surged 11 percent from Oct. 3, its lowest close in more than a year, through Oct. 14. The rebound brought the gauge close to the top of a price range between 1,074.77 and 1,230.71, where it’s traded for more than two months.
No Complete Fix
Germany said European Union leaders won’t provide the complete fix to the euro-area debt crisis that global policy makers are pushing for at an Oct. 23 summit. Group of 20 finance ministers and central bankers concluded weekend talks in Paris endorsing parts of an emerging plan to avoid a Greek default, bolster banks and curb contagion.
German Chancellor Angela Merkel has made it clear that “dreams that are taking hold again now that with this package everything will be solved and everything will be over on Monday won’t be able to be fulfilled,” Steffen Seibert, Merkel’s chief spokesman, said at a briefing in Berlin today. The search for an end to the crisis “surely extends well into next year.”
U.S. equity futures fell after the Federal Reserve Bank of New York’s general economic index rose to minus 8.5 from minus 8.8 in September. Economists projected an improvement to minus 4, based on the median of 53 forecasts in a Bloomberg News survey. Separate figures from the Federal Reserve showed that industrial production in the U.S. advanced in September on growing demand for automobiles and computers.
‘A Bit Optimistic’
“There’s not going to be a quick fix to the problems in Europe,” Brian Jacobsen, chief portfolio strategist at San Francisco-based Wells Fargo Funds Management, which oversees $215 billion, said in a telephone interview. “People were getting a bit optimistic. This economic recovery will be uneven in terms of geography and the sectors that are really benefiting from the slow growth.”
The Morgan Stanley (MS) Cyclical Index of companies most-tied to the economy lost 2.4 percent. The Dow Jones Transportation Average, a proxy for the economy, retreated 2.1 percent. The KBW Bank Index decreased 2.8 percent. Alcoa slumped 4 percent to $9.85. 3M fell 2.8 percent to $76.65.
Wells Fargo dropped 6.2 percent to $25.02. Revenue fell to $19.6 billion from $20.4 billion in the second quarter, missing the $20.2 billion estimate of 20 analysts surveyed by Bloomberg.
Citigroup Rallies
Citigroup Inc. (C) rallied 0.6 percent to $28.58. The third- biggest U.S. bank said profit rose 74 percent, beating analysts’ estimates on a $1.9 billion accounting gain and a reduction in losses tied to soured loans.
Gannett slid 8.6 percent, the most in the S&P 500, to $10. The owner of 82 newspapers and 23 television stations reported third-quarter profit decreased 1.6 percent as publishing revenue, including advertising and circulation, declined 5.3 percent.
El Paso Corp. (EP) surged 24 percent to $24.26. The cash and stock offer is valued at $26.87 per El Paso share, or 37 percent more than the Oct. 14 closing price, Houston-based Kinder Morgan said in a statement yesterday. The combined company would have 67,000 miles (107,000 kilometers) of gas lines and eclipse Enterprise Products Partners LP as the biggest U.S. pipeline operator.
Utility, telephone and consumer staples providers, which are least-tied to the economy, outperformed the S&P 500 today.
Stock market bulls and bears agree on at least one thing. The highest valuations for makers of household goods since 2008 signal the best is over after the industry rose more than any other group this year.
Bears vs Bulls
Bears say the easy money has been made in so-called defensive shares should the world slip into a recession. Bulls favor companies with faster earnings growth and cheaper valuations. The last time household-goods producers were this expensive versus the MSCI World (MXWO), stocks were about to begin an advance in which bank, mining and industrial stocks jumped more than 137 percent, while consumer staples rose 76 percent.
“You’ve got too much money that has been bet that we’re going into a recession,” said Jeffrey Saut, who helps oversee $300 billion as chief investment strategist at Raymond James & Associates in St. Petersburg, Florida. “If we don’t go into a recession, you’ll get a whole rotation out of these highly valued defensive stocks into more aggressive stocks.”
Bullish bets in the Traxis Partners LP hedge fund, also known as its net long position, rose to 65 percent, according to founder Barton Biggs.
“I’m inclined to stay where I am, which is moderately, cowardly bullish,” Biggs said in an interview with Betty Liu on Bloomberg Television’s “In the Loop” program. “We’re going to creep higher from here for a while.”
To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net
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