Stocks in U.S. Decline Amid Growing Concern About Greek Debt Negotiations

By Rita Nazareth - Feb 7, 2012 5:02 AM GMT+0700

U.S. stocks declined, following a five-week advance for the Standard & Poor’s 500 Index, amid concern about Europe’s debt crisis as Greek leaders wrestled with spending cuts to get aid and avert a default.

Banks in the S&P 500 dropped 1.1 percent, following a retreat in European lenders. Boeing Co. (BA) decreased 1.2 percent as it ordered inspections of 787 Dreamliners after finding signs of fuselage delamination. Toll Brothers Inc. (TOL) and Lennar Corp. (LEN) slumped at least 2.3 percent after Raymond James Financial Inc. cut its recommendation for the homebuilders. Medco Health Solutions Inc. (MHS) tumbled 8.1 percent amid concern that its proposed acquisition by Express Scripts Inc. (ESRX) may be blocked.

The S&P 500 decreased less than 0.1 percent to 1,344.33 as of 4 p.m. New York time, paring a decline of as much as 0.6 percent as energy companies advanced. The Dow Jones Industrial Average retreated 17.10 points, or 0.1 percent, to 12,845.13.

“It’s an ongoing Greek tragedy,” Stephen Wood, the New York-based chief market strategist for Russell Investments, said in a phone interview. His firm oversees $137.6 billion. “We’re in the hands of the best efforts of European politicians. That’s a source of risk that’s difficult to forecast.”

Stocks fell as European leaders stepped up pressure on Greek politicians to meet the conditions of a 130 billion-euro ($171 billion) bailout, saying time was running out. French President Nicolas Sarkozy met German Chancellor Angela Merkel as Greece’s interim prime minister, Lucas Papademos, planned to confer with the so-called troika of international lenders. A gathering of Greek political leaders was delayed by a day until tomorrow as they struggled for a unified response.

Best Start

Today’s decline in equities came after the S&P 500 capped the best start to a year since 1987 as a report showed that employment growth topped estimates and the jobless rate unexpectedly fell to 8.3 percent. Financial and commodity shares had the biggest losses among 10 industries.

“Markets are not a very patient beast,” Michael A. Gayed, chief investment strategist in New York at Pension Partners LLC, said in a telephone interview. “When you have these talks that the Greece situation is going to be resolved, then, it gets postponed, markets get impatient.”

Boeing fell 1.2 percent to $75.46. The new checks add to challenges in boosting output of the twin-engine 787, which entered service in 2011 after more than three years of delays. Boeing said 2012 deliveries for the jet should stay on schedule after an initial slowdown for inspections. Delamination is a term for the separation that can occur in a composite material when its layers crack and lose strength.

Homebuilders Slump

A gauge of homebuilders in S&P indexes slumped 1.7 percent. Toll Brothers, the largest U.S. luxury-home builder, slid 2.4 percent to $23.28. Lennar slid 2.8 percent to $22.69. KB Home (KBH) tumbled 3.5 percent to $10.43. The companies are among those downgraded at Raymond James, which cited valuation concern.

Medco Health Solutions tumbled 8.1 percent to $58.47. Reuters reported that “key people” at the Federal Trade Commission are seeking to stop the company’s proposed $29.1 billion acquisition by rival pharmacy benefits company Express Scripts. Medco and Express Scripts said they still expect to complete the transaction in the first half of this year. Express Scripts slumped 4.6 percent to $49.67.

Walgreen Co. (WAG), the largest U.S. drugstore chain, gained 1.9 percent to $34.28.

Humana Inc. slid 5.4 percent to $85.25. The second-largest Medicare provider raised its 2012 earnings forecast less than analysts estimated as more Americans were expected to seek medical care in a recovering economy.

New CEO

Micron Technology Inc. (MU) retreated 2.8 percent to $7.73. The company named Mark Durcan as its chief executive officer, replacing Steve Appleton, who died on Feb. 3 after crashing an experimental plane. The shares fell 3.1 percent to $7.70 in late trading Feb. 3, after having been halted at $7.95.

With today’s drop in stocks, the S&P 500 traded for about 14 times its companies’ earnings and has been stuck below its five-decade average multiple of 16.4 since May 2010, the longest stretch since a 13-year period beginning in 1973.

Earnings beat projections at 66 percent of the 268 companies in the S&P 500 that reported quarterly results since Jan. 9, according to data compiled by Bloomberg. Profits probably grew 4.9 percent in the fourth quarter, according to a Bloomberg survey of analysts. The projection has fallen from 6.2 percent at the end of last year.

Energy shares had the biggest gain in the S&P 500 among 10 industries, rising 1.1 percent as a group. Alpha Natural Resources Inc. (ANR), a coal miner, rallied 3.3 percent to $23.54. Baker Hughes Inc. (BHI) added 2.1 percent to $52.09.

Disney, Sprint

Walt Disney Co. gained 1.2 percent to $40.46. The world’s biggest theme-park operator was raised to “buy” from “neutral” at Davenport & Co. by equity analyst Michael Morris. The 12-month share-price estimate is $46.

Sprint Nextel Corp. climbed 6 percent to $2.46. The third- largest U.S. wireless, scheduled to release its fourth-quarter results on Feb. 8, offers a buying opportunity for investors because earnings during the period most likely marked the trough, Macquarie Group Ltd. said.

Kroger Co. rose 0.6 percent to $24.06. The largest U.S. grocery-store chain traded last week at an 86 percent discount to its projected sales this fiscal year, leaving it cheaper than 99 percent of companies in the S&P 500, according to data compiled by Bloomberg.

The company, which has increased sales in every year since at least 1987 even as Target Corp. and Wal-Mart Stores Inc. grabbed market share from other supermarkets, may now become a target for retailers outside the U.S. or private equity firms, according to Northcoast Research Holdings LLC.

Takeover Offer

Valued at $13.7 billion last week, Kroger could still attract a takeover offer 30 percent above its current price, Point View Wealth Management Inc. said, making it the largest grocery acquisition on record.

“Of the traditional pure-play grocery stores, Kroger is the crown jewel,” David Dietze, president and chief investment strategist at Summit, New Jersey-based Point View, which owns shares of Kroger, said in a telephone interview. “They have a long consistent record of positive same-store sales performance. It’s timely to acquire Kroger because it’s cheap.”

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