Bloomberg News

U.S. Stocks Decline Amid Europe Crisis Concern as Apple Slumps

October 19, 2011

Oct. 19 (Bloomberg) -- U.S. stocks fell, following yesterday’s rally for benchmark gauges, amid concern about the strength of the economy and an impasse over European bailout talks, while Apple Inc. tumbled on disappointing results.

Apple slumped 5.6 percent, the biggest decline since December 2008, after profit missed estimates for the first time in at least six years. Alcoa Inc. and DuPont Co. slid more than 2.6 percent, pacing losses in companies most-dependent on economic growth. Bank of America Corp. and Wells Fargo & Co. dropped at least 2.6 percent, reversing earlier gains.

The S&P 500 decreased 1.3 percent to 1,209.88 at 4 p.m. New York time. The benchmark gauge yesterday rose to the highest level since August. The Dow Jones Industrial Average dropped 72.43 points, or 0.6 percent, to 11,504.62 today.

“Time is running out for Europe,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, said in a telephone interview. His firm oversees $550 billion. “The longer it waits to fix itself, the more uncertainty there is. In the U.S., earnings are not bad, but we’re seeing a bit of erosion in positive surprises. We set the top of the range on the S&P 500. It would take a lot of good news to get through 1,230.”

The S&P 500 rose from the threshold of a bear market early this month amid optimism over earnings and steps by European leaders to support banks. The rebound brought the gauge close to the top of a price range between 1,074.77 and 1,230.71, where it’s traded for more than two months. The S&P 500 briefly climbed above that range yesterday, reaching 1,233.10.

Rescue Fund

Global stocks fell as France and Germany split on the role of the European Central Bank in leveraging a rescue fund as banks lobbied against forced recapitalizations and larger writedowns of Greek debt. French President Nicolas Sarkozy flew to Germany to join the talks as leaders assembled in Frankfurt in an effort to narrow divisions before an Oct. 23 summit.

In the U.S., the Federal Reserve said consumer spending rose slightly last month and the economy maintained its expansion, even as companies reported more doubt about the strength of the recovery.

“Overall economic activity continued to expand in September, although many districts described the pace of growth as ‘modest’ or ‘slight,’” the Fed said in its Beige Book survey released today in Washington. “Contacts generally noted weaker or less certain outlooks for business conditions.”

The Morgan Stanley Cyclical Index of companies most-tied to the economy lost 1.7 percent. The Dow Jones Transportation Average, a proxy for the economy, fell 1.3 percent. Alcoa slid 3.7 percent to $9.77, while DuPont fell 2.6 percent to $43.80.

Banks Reverse Rally

The KBW Bank Index slumped 2.9 percent after rising 1 percent earlier today. Bank of America dropped 3.6 percent to $6.40. Wells Fargo declined 2.6 percent to $25.18. Comerica Inc. slumped 11 percent to $23.13 and M&T Bank Corp. decreased 5.6 percent to $72.79 after reporting that net interest margins declined in the third quarter.

Apple tumbled 5.6 percent to $398.62. The world’s largest technology company sold 17.07 million iPhones, less than the 20 million projected by analysts surveyed by Bloomberg, as consumers held out for the iPhone 4S, released after the close of the period that ended Sept. 24.

Stocks rose earlier today as data showed that builders began work on more U.S. homes than forecast in September and consumer prices climbed at the slowest pace in three months.

“The U.S. housing data is helpful,” Peter Jankovskis, who helps manage about $2.4 billion at Oakbrook Investments in Lisle, Illinois, said in a telephone interview. “That is one big hurdle that the economy needs to overcome. Apple’s figures are not too big of a shock and other names surprised on the upside. It’s shaping up to be a very good earnings season.”

Earnings Season

Profit for S&P 500 companies will climb 17 percent in the third quarter and rise 18 percent to a record $99.88 for all of 2011, according to analyst estimates compiled by Bloomberg. About three quarters of the S&P 500 companies that reported results since Oct. 11 beat analysts’ estimates.

Intel Corp. rose 3.6 percent to $24.24. The world’s biggest chipmaker forecast fourth-quarter sales that exceeded some analysts’ estimates, citing strong demand for laptop computers in emerging markets. Yahoo! Inc. gained 3 percent to $15.94 after demand for advertising helped third-quarter profit top analysts’ forecasts.

Travelers Cos. rallied 5.7 percent, the most in the Dow, to $54.39, after the insurer reported an increase in third-quarter policy sales and said it was raising rates for clients.

Staying Away

Speculators are staying away from U.S. stocks even though the economy is rebounding and risk is easing, according to Pierre Lapointe, Brockhouse & Cooper Inc.’s global strategist. He reached that conclusion by tracking the gap between the number of E-mini S&P 500 futures that smaller investors own and the number sold short, a bet on lower stock prices.

Short sales exceeded so-called long positions by 299,465 contracts last week, according to data compiled by the Commodity Futures Trading Commission. The net short position was close to an Aug. 30 peak of 323,296 contracts -- the most since September 2007, just before a five-year bull market in stocks ended.

“Speculators are keeping their guard up,” Lapointe, based in Montreal, and Alex Bellefleur, a financial economist, wrote two days ago in a report. The reluctance bodes well for stocks, the report said, as prices have yet to reflect more favorable economic data and investors’ growing appetite for risk.

--With assistance from Whitney Kisling and David Wilson in New York. Editor: Jeff Sutherland

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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