S&P 500 Poised for Longest Losing Streak Since November

By Rita Nazareth - Apr 10, 2012 10:07 PM GMT+0700

U.S. stocks declined for a fifth straight day, giving the Standard & Poor’s 500 Index its longest losing streak since November, as concern about Europe’s sovereign debt crisis grew amid a surge in Spanish bond yields.

Alcoa Inc. (AA) slid 1.7 percent as it becomes the first company in the Dow Jones Industrial Average to report first-quarter results. PPL Corp. (PPL) fell 1.7 percent as the energy and utility holding company will sell shares. Best Buy Co. (BBY) reversed a gain of as much as 4.8 percent as the electronics retailer said Chief Executive Officer Brian Dunn would resign. Dell Inc. (DELL) rose 1 percent as it’s teaming up with Lockheed Martin Corp. to pursue the U.S. government’s biggest information technology contract.

The S&P 500 retreated 0.5 percent to 1,375.49 at 11:06 a.m. New York time. The benchmark measure for American equities has fallen 3.1 percent in five days. The Dow average decreased 68.57 points, or 0.5 percent, to 12,861.02 today.

“I don’t think there’s any rush to be involved in the stock market,” James Swanson, who oversees about $250 billion as chief investment strategist at Boston-based MFS Investment Management, said in a telephone interview. “Europe is a temporary concern. The market is signaling they haven’t fixed the whole problem. In the U.S., this will be a soft quarter in earnings. Investors will need more reassurance.”

Global stocks fell as the yield on Spain’s 10-year benchmark bond surged after Economy Minister Luis de Guindos declined to rule out a rescue for Spain and Bank of Spain Governor Miguel Angel Fernandez Ordonez said the nation’s lenders may need additional capital if the economy weakens more than expected.

Earnings Season

The S&P 500 has risen 9.4 percent so far this year amid better-than-estimated economic and corporate earnings reports. While S&P 500 per-share profit growth slowed to 0.8 percent during the first three months of the year from 4.9 percent in the fourth quarter and 15 percent in the three months ended in September, it will accelerate to 8.3 percent during all of 2012, according to analyst estimates compiled by Bloomberg.

Alcoa, the largest U.S. aluminum producer, lost 1.7 percent to $9.44. It is scheduled to release its first-quarter results after the market close.

U.S. corporate profit growth stalled in the U.S. last quarter as companies from McDonald’s Corp. (MCD) to 3M Co. (MMM) saw gains in the world’s largest economy eroded by a slump in Europe. The European debt crisis and a slowdown in China are hurting S&P 500 companies, which derive about 40 percent of profits from abroad.

Best Since 1998

At home, where the S&P 500 Index (SPX) had its biggest first- quarter rally since 1998, consumer confidence is improving along with the job market -- boosting demand for construction companies and retailers. The U.S. economy will accelerate 2.2 percent this year, up from 1.7 percent in 2011, according to the average of 72 estimates compiled by Bloomberg.

“While the U.S. economy is the cleanest shirt in the hamper at the moment, we’re only talking about an economy that’s motoring along at a subpar pace,” said Mark Luschini, chief investment strategist for Philadelphia-based Janney Montgomery Scott LLC, which manages about $54 billion. “The only way you’re going to see higher profitability is through faster growth.”

PPL declined 1.7 percent to $27.20.

Best Buy lost 2.6 percent to $22.07. The company said board member G. Mike Mikan would take over the CEO position on an interim basis. The change was a “mutual agreement” that new leadership was needed, the Richfield, Minnesota-based company said today in a statement. A committee of directors has been created to search for a new CEO, the company said.

Dell Rallies

Dell gained 1 percent to $16.39. The company would provide computers and support services as part of the five-year, $7.5 billion Navy agreement, said George Newstrom, general manager of Dell Services’ federal government business.

Supervalu Inc. (SVU) surged 9.2 percent to $5.81. The supermarket and pharmacy chain forecast 2013 earnings excluding some items of at least $1.27 a share, beating the average analyst forecast of $1.19.

American International Group Inc. (AIG) rose 1.5 percent to $32.48. The insurer was raised to the equivalent of buy at Wells Fargo & Co., which cited a “likelihood that the company will be independent from the U.S. government over the course of the next year.”

“A significant disconnect” between stock valuations and bond yields in the U.S. has made equities relatively cheap, according to Binky Chadha, Deutsche Bank AG’s chief global strategist.

P/E Ratio

Ten-year Treasury yields would have to rise about 120 basis points to track the estimated price-earnings ratio for the S&P 500 as they did during the first three quarters of 2011, Chadha wrote in an April 5 report. Each basis point amounts to 0.01 percentage point. The government security yielded 2.04 percent as of yesterday.

The differential primarily reflects the Federal Reserve’s plan to keep its benchmark interest rate close to zero at least through late 2014, in his view.

“The Fed’s outlook for unemployment and inflation is therefore key” in determining when the gap might close, Chadha wrote. Policy makers for the central bank are scheduled to meet on April 24-25.

Stocks are a bargain with the S&P 500 at about 13 times analysts’ projected earnings for this year, the New York-based strategist wrote. He cited a December report in which he called the index fairly valued at 15.4 times future profit.

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