By Rita Nazareth - Jan 13, 2012 10:02 PM GMT+0700
U.S. stocks fell, snapping a four- day rally for the Standard & Poor’s 500 Index, on a report that several euro-region countries may face credit downgrades by S&P and as JPMorgan Chase & Co.’s profit slumped 23 percent.
All 10 groups in the S&P 500 declined as financial, industrial and commodity gauges slid at least 0.7 percent. JPMorgan, the largest U.S. bank by assets, retreated 3.3 percent. Bank of America Corp. (BAC), Morgan Stanley and Citigroup Inc. (C) retreated at least 3.2 percent. Eastman Kodak Co. (EK) tumbled 22 percent as the unprofitable imaging company is said to be in talks with Citigroup to provide bankruptcy financing.
The S&P 500 lost 0.8 percent to 1,285.32 as of 10 a.m. New York time, after the report by Dow Jones Newswires, which cited European Union sources. The benchmark gauge advanced 1.4 percent over the previous four days. The Dow Jones Industrial Average slid 102.70 points, or 0.8 percent, to 12,368.32 today.
“The cloud of Europe has weighed on investors’ sentiment,” Keith Wirtz, who oversees $14.6 billion as chief investment officer at Fifth Third Asset Management in Cincinnati, said in a telephone interview. “These downgrading actions in Europe were expected down the road, not right now,” he said. “JPMorgan had very soft business results coming from investment banking and trading. Still, they were able to scratch out an EPS result in line with expectations.”
The S&P 500 was still headed for the second week of gains amid lower borrowing costs at auctions in Europe. Investors also watched fourth-quarter results. S&P 500 companies, which beat estimates in the previous 11 quarters, are forecast to report a 6 percent increase in per-share profit during the September- December period, according to projections compiled by Bloomberg.
Economic Data
The U.S. trade deficit widened more than forecast in November as American exports declined and companies stepped up imports of crude oil and automobiles. Separately, the Thomson Reuters-University of Michigan preliminary index of consumer sentiment in January rose to 74 from 69.9 at the end of December. The gauge was projected to rise to 71.5, according to the median estimate in a Bloomberg News survey.
Financial companies slumped. JPMorgan dropped 3.3 percent to $35.64. Investment-banking revenue declined 30 percent to $4.36 billion from a year earlier as many clients stayed on the sidelines on concern the European debt crisis would lead to a global economic slowdown.
“Financials would have to participate for the market to do well,” James Dunigan, who helps oversee $104 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a telephone interview. “We’ll look to see whether all that disruption in Europe had some an effect in overall earnings reports. If that bleeds over into our export numbers, it may have an impact on the earnings side.”
Bank Shares
Bank of America lost 3.8 percent to $6.53, while Morgan Stanley (MS) retreated 3.2 percent to $16.62. Citigroup fell 3.2 percent to $30.60. Goldman Sachs Group Inc. (GS) slid 3 percent to $98.22.
Kodak tumbled 22 percent to 53 cents. The company may seek protection from creditors within weeks and then hold an auction to sell its patent portfolio, said three people familiar with the matter, who asked not to be identified because the talks are private. Kodak may seek about $1 billion in so-called debtor-in- possession financing, though terms may change, two people said.
Charles Schwab Corp. (SCHW) lost 2.2 percent to $12.20. The independent, San Francisco-based brokerage was downgraded to “market perform” from “outperform” at Wells Fargo & Co.
Relative Calm
Stock investors shouldn’t get used to the relative calm that markets are now showing, according to Andrew Garthwaite, a global equity strategist at Credit Suisse Group AG.
Volatility is likely to rise this year, Garthwaite wrote yesterday in a report. He attributed the outlook to excessive borrowing in developed economies, which ensures that investors will be “abnormally sensitive” to shifts in economic growth and government policy, he added.
“Sentiment in the market has clearly changed over the past three months,” wrote Garthwaite, who is based in London. Both volatility gauges erased almost all of their gains from last year’s second-half stock slump. The reading for the S&P 500 dropped below 20 yesterday for the first time since Aug. 3.
Even so, developed-country debt is still $8 trillion too high, the report said. Garthwaite came up with that estimate by comparing the borrowing relative to gross domestic product with a figure based on the debt-to-GDP ratio’s trend during the past three decades.
The need to reduce this burden creates “a considerable amount of tail risk,” or potential for unlikely stock-market outcomes, the report said. He mentioned 11 possible surprises for this year. One was a breakup of the euro region, which he estimated would send the S&P 500 falling to 800, or 38 percent less than yesterday’s close.
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
Posts
No comments:
Post a Comment