By Rita Nazareth - Oct 25, 2011 10:38 PM GMT+0700
U.S. stocks fell, halting a three- day gain in the Standard & Poor’s 500 Index, after United Parcel Service Inc. (UPS) sank and economic reports missed estimates as investors awaited tomorrow’s European summit.
All 10 groups in the S&P 500 retreated as a gauge of financial stocks slid 2 percent. UPS, the largest package- delivery company and a proxy for the economy, retreated 1.9 percent after international shipping growth began to cool while U.S. expansion stagnated. 3M Co. (MMM), the maker Scotch-Brite sponges, lost 5.2 percent after cutting its 2011 profit forecast. Netflix Inc. (NFLX), the DVD and video-streaming company, plunged 35 percent after projecting losses in 2012.
The S&P 500 lost 1.2 percent to 1,239.38 as of 11:37 a.m. New York time, after rallying 3.7 percent over the previous three days. The Dow Jones Industrial Average retreated 108.91 points, or 0.9 percent, to 11,804.71 today.
“It’s going to be a slow recovery,” Mark Bronzo, who helps manage $23 billion at Security Global Investors in Irvington, New York, said in a telephone interview. “The economic data points show that we’re in a bottoming process. UPS gave some cautious commentary concerning global economic growth. People feel that the market is a little overbought after the rally.”
The S&P 500 has risen 11 percent in October through yesterday, following a five-month decline. It climbed from the threshold of a bear market early in October on steps by European leaders to support banks and higher-than-estimated earnings. The rebound brought the index above a price range where it had traded since August.
Economic Reports
Stocks extended losses after consumer confidence unexpectedly slumped in October to the lowest level since March 2009, when the U.S. economy was in a recession, as Americans’ outlooks for employment and incomes soured. Separate data showed that home prices in 20 U.S. cities dropped more than forecast in August, highlighting one of the obstacles facing the economic recovery in its third year.
The Morgan Stanley Cyclical Index of companies most-tied to the economy dropped 1.8 percent. The Dow Jones Transportation Average, a proxy for the economy, declined 1.8 percent. A gauge of homebuilders in S&P indexes tumbled 3.2 percent.
Forty-three companies in the S&P 500 are scheduled to release earnings today, according to data compiled by Bloomberg. About three quarters of the S&P 500 companies that reported results since Oct. 11 beat analysts’ projections, the data showed. Profit for all companies in the index climbed 16 percent during the third quarter, and will increase 18 percent to a record $99.35 a share for all of 2011, according to analyst estimates compiled by Bloomberg.
UPS Slumps
UPS decreased 1.9 percent to $69.50. The company’s total U.S. volume was flat in the third quarter because of “the slow U.S. economy,” Atlanta-based UPS said today in a statement. A 4.6 percent increase in shipments outside the U.S. trailed the 6.2 percent gain in the previous three months.
Traders had boosted the price of bearish UPS options to the highest level since 2008 before the company’s quarterly report. The cost of puts to sell was 57 percent higher than calls to buy as of Oct. 21, according to data compiled by Bloomberg. The price relationship known as skew widened 20 percent since Oct. 4. For FedEx Corp., the company’s biggest competitor, the gap in option prices increased 8.6 percent during the period.
3M lost 5.2 percent to $77.89. The maker of auto parts and Scotch-Brite sponges cut its 2011 profit forecast after reporting third-quarter profit that fell short of analysts’ estimates.
Netflix Plunges
Netflix plunged 35 percent to $77.74. The company faces rising content costs, a customer revolt over a price increase and startup costs as it expands into Latin America, followed by the U.K. and Ireland in early 2012. Other new markets will have to wait, Chief Executive Officer Reed Hastings said.
European leaders will hold a summit tomorrow as they seek to bolster the region’s rescue fund, recapitalize banks and provide debt relief to Greece. Boosting the effectiveness of the European Financial Stability Facility will require further talks with investors as German lawmakers prepare to vote on its new powers, a European Union document showed.
“It’s hard to get excited in this environment,” Timothy Ghriskey, who oversees $2 billion as chief investment officer of Solaris Group LLC in Bedford Hills, New York, said in a telephone interview. “You have very anemic growth and you have a big a question mark about the debt situation in Europe.”
Moving Averages
The proportion of stocks above their 50-day moving averages rose to the highest level in a year, a sign that the S&P 500’s rally from its 2011 low will last, according to Bespoke Investment Group LLC. About 90 percent of the stocks in the benchmark index are trading above their average in the past 50 days, the most since Oct. 18, 2010, according to the research firm. That marked a reversal from the past year, when the ratio fell even as the S&P 500 reached new highs.
“We have been stressing how important it is for this market to see expansion in underlying breadth during market rallies,” Justin Walters, Bespoke’s co-founder, wrote in a note to clients yesterday. “With the current rally, we are finally getting it.”
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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