Bloomberg News

U.S. Stocks Drop as JPMorgan Leads Banks Lower; Chipmakers Rise

October 13, 2011

Oct. 13 (Bloomberg) -- U.S. stocks fell, paring gains from the best Standard & Poor’s 500 Index rally over seven days since 2009, amid lower earnings from JPMorgan Chase & Co. and concern equities rose too much on optimism about Europe’s debt crisis.

Stocks trimmed losses as chipmakers in the S&P 500 added 1.9 percent and Yahoo! Inc. rose as much as 3.8 percent after people with knowledge of the matter said KKR & Co. and Blackstone Group LP are among firms considering bids for the company. JPMorgan dropped 4.8 percent after reporting a 33 percent profit decline, excluding a $1.9 billion accounting benefit, as investment banking and trading income slumped.

The S&P 500 retreated 0.3 percent to 1,203.66 at 4 p.m. New York time, paring its loss from 1.4 percent. It had rebounded 9.8 percent from a 13-month low on Oct. 3 through yesterday. The Dow Jones Industrial Average decreased 40.72 points, or 0.4 percent, to 11,478.13 today. The Nasdaq Composite Index climbed 0.6 percent, rallying a fourth straight day.

“It’s hard to find a port in the storm,” Barry James, who helps oversee $2.5 billion as president of James Investment Research in Xenia, Ohio, said in a telephone interview. “The announcement today doesn’t make it any better for the banks. We keep getting this back-and-forth in Europe. We’ve had a nice run in stocks and people are taking a bit off the table.”

The S&P 500 rose 4.5 percent over the previous three days after German Chancellor Angela Merkel said European leaders would do “everything necessary” to ensure banks have adequate capital. The rebound had yet to bring the gauge out of a price range where it’s traded for more than two months. The index has fluctuated between 1,074.77 and 1,230.71 since Aug. 5.

Technology Rally

Technology shares in the S&P 500 rose 1 percent. At 4:29 p.m., following the close of exchanges, Google Inc. added 5.4 percent and Nasdaq-100 Index futures climbed 1.3 percent after the world’s most-popular search engine beat profit estimates.

Yahoo added 1 percent to $15.93 during the regular trading session. KKR and Blackstone may become part of a consortium that would pool the financing needed for a bid, said the people, who asked not to be identified because the review is preliminary and the firms may decide not to make an offer.

“We’re in a bottoming process,” Bruce McCain, who helps oversee $22 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said in a phone interview. “The question becomes: Do I risk sitting on the sidelines as this thing begins to take off on me?”

Harm to Banks

U.S. equities followed European stocks lower as the European Central Bank said the involvement of the private sector in euro-area bailouts through enforced investor losses is a risk to financial stability and would have “direct negative effects” on the banking sector. Pacific Investment Management Co. Chief Executive Officer Mohamed A. El-Erian said European leaders are beginning to recognize the need for Greek bondholders to take bigger losses than previously agreed.

“There’s no way to sugarcoat this,” Daniel Genter, who oversees about $3.7 billion as president of RNC Genter Capital Management in Los Angeles. “It’s going to take some pretty severe medicine to solve Europe’s debt crisis.”

The KBW Bank Index slumped 2.9 percent. JPMorgan fell 4.8 percent to $31.60 after revenue at its investment-banking unit fell 13 percent from the second quarter as concern that Greece would default and U.S. lawmakers would fail to raise the debt ceiling roiled markets during the third quarter. The firm said the division will face similar market conditions for the rest of the year.

BofA, Citigroup

Bank of America Corp., the largest U.S. lender by assets, dropped 5.5 percent to $6.22. Citigroup Inc. declined 5.3 percent to $27.64.

The Morgan Stanley Cyclical Index of companies most-tied to the economy declined 0.9 percent. The Dow Jones Transportation Average retreated 0.6 percent. FedEx Corp. lost 1.7 percent to $73.87. General Electric Co. decreased 1.1 percent to $16.22.

The threat of a bear market is receding after the S&P 500 rallied the most in 31 months, leaving the gauge about 1 percent away from a level where two advances have stopped since August. The measure climbed 1 percent yesterday. Gains were reduced in the last hour of trading yesterday after the S&P 500 climbed past 1,220, just above levels reached on Sept. 16 and Aug. 31 when declines began.

The lowest prices relative to earnings since 2009 and a shortage of better investment options have boosted equities, according to David Spika, who helps oversee $14 billion as an investment strategist at Westwood Holdings Group Inc. in Dallas.

“It wasn’t going to take much good news to drive the market higher,” Spika said yesterday in a telephone interview. “You had 30-year Treasuries yielding less than 3 percent, 10- year Treasuries yielding less than 2 percent, and stocks trading at 11 times earnings. You have to believe that at some point it’s not going to take much for investors to get back.”

--With assistance from Lu Wang and Nikolaj Gammeltoft in New York. Editors: Nick Baker, Michael P. Regan

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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