Bloomberg News

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

January 31, 2012

Jan. 30 (Bloomberg) -- U.S. stocks fell, sending the Standard & Poor’s 500 Index lower for a third day, as European leaders sparred with Greece over a second rescue program.

Equities pared declines as some of the biggest technology companies rallied. Apple Inc. and Microsoft Corp. added at least 1.2 percent. Bank of America Corp. fell 3 percent after Goldman Sachs Group Inc. cut its recommendation. Halliburton Co. and Chesapeake Energy Corp. dropped more than 1.1 percent as oil slumped. Gannett Co., the owner of 82 newspapers including USA Today, tumbled 6.9 percent as its profit plunged 33 percent.

The S&P 500 decreased 0.3 percent to 1,313.01 at 4 p.m. New York time. The benchmark index for American equities trimmed a decline of as much as 1.2 percent. The Dow Jones Industrial Average retreated 6.74 points, or 0.1 percent, to 12,653.72.

“The low hanging fruit has been picked and now it’s a more difficult slog to get substantive changes in Europe,” said Kevin Caron, a market strategist in Florham Park, New Jersey, at Stifel Nicolaus & Co, which has more than $107 billion in client assets. “There are near term doubts over the willingness of Greece and perhaps other countries to accept fiscal reforms. Anything that could interrupt further progress in the euro area could be met with an opportunity for traders to sell.”

Today’s decline follows a four-week rally in the S&P 500, which was driven by the Federal Reserve’s plans to keep interest rates low through at least late 2014 and better-than-estimated earnings. Of the 171 S&P 500 companies that reported results since Jan. 9, 113 posted per-share earnings that beat projections, Bloomberg data show.

‘National Dignity’

Greek Finance Minister Evangelos Venizelos rejected reports of plans to appoint a European Union commissioner to oversee the nation’s budget, citing “national dignity.” French President Nicolas Sarkozy said Greek debt-swap talks with private bondholders are “going in the right direction” and the issue should be settled in the next few days.

“The question isn’t whether or not Europe goes into a recession, but how deep that recession is going to be,” Tom Wirth, who helps manage $1.5 billion as senior investment officer for Chemung Canal Trust Co., in Elmira, New York, said in a telephone interview. “Greece as it stands currently is untenable. The market is getting comfortable with some sort of Greek default, whether it’s orderly or disorderly.”

Financial shares had the biggest decline in the S&P 500 among 10 industries, falling 1 percent as a group. Bank of America dropped 3 percent to $7.07 after Goldman Sachs cut its recommendation for the shares to “neutral” from “buy.”

Energy Stocks

A measure of energy shares in the S&P 500 retreated 0.4 percent. Halliburton slumped 1.2 percent to $36.67. Chesapeake decreased 1.6 percent to $21.69.

Nabors Industries Ltd. gained 3.5 percent, the most in the S&P 500, to $18.56. Traders in the options market are betting the world’s largest land-drilling contractor may be a takeover candidate after the departure of its 81-year-old chief executive officer. In the past two weeks, calls priced 10 percent above Nabors’ stock rose the most in 18 months versus puts on one- month contracts, signaling traders are anticipating an acquisition, said JonesTrading Institutional Services LLC.

Gannett tumbled 6.9 percent to $14.17. Revenue from the publishing division, the largest unit, declined 5.3 percent as advertising and circulation fell. The newspaper industry overall has continued to lose ad business to Internet companies such as Google Inc. and Facebook Inc.

Staples Inc. declined 4.9 percent to $15.23. The world’s largest office products company was cut to “sell” from “neutral” by Goldman Sachs, which cited a “tough” outlook for the global printing segment.

Apple Rallies

Measures of telephone and technology companies in the S&P 500 rallied. Apple added 1.3 percent to $453.01. Microsoft gained 1.3 percent to $29.61. Verizon Communications Inc. rose 1.1 percent to $37.61.

Pep Boys -- Manny, Moe & Jack surged 24 percent to $14.93 after agreeing to go private in an acquisition by Gores Group LLC valued at about $791 million. The cash offer of $15 a share is 24 percent higher than Pep Boys’ closing price on Jan. 27, the companies said today in a statement.

US Airways Group Inc. rallied 4.2 percent to $8.52. Delta Air Lines Inc. is studying a bid as North American carriers assess possible combinations after the bankruptcy of American Airlines parent AMR Corp., people familiar with the matter said.

Valuations for U.S. equities have been stuck below the five-decade average for the longest period since Richard Nixon’s presidency, a sign investors don’t trust earnings even after a three-year bull market.

Record Profits

Analysts estimate profits in the S&P 500 will reach a record $104.78 this year after increasing 125 percent since the end of 2009, the fastest expansion in a quarter century, according to data compiled by Bloomberg. American companies are boosting income so much that even after stocks doubled, the S&P 500 hasn’t traded above its 16.4 mean ratio for 446 days, the longest stretch since the 13 years beginning in 1973.

Battered by the 14 percent decline in the S&P 500 since 2000, the worst financial crisis since the Great Depression and the flash crash 21 months ago, investors are staying away from stocks, even after record profits, 10 quarters of U.S. economic growth and promises by the Federal Reserve to keep interest rates near zero through 2014. Of the $37 trillion erased from global equities in the credit crisis, $24 trillion has been restored.

“After two significant bear markets, the flash crash and the lost decade, many have simply said, ‘No mas,’” Howard Ward, who helps oversee $35 billion at Gamco Investors Inc. in Rye, New York, said in an e-mail on Jan. 24. “Of course, bull markets have a history of climbing a wall of worry. And it is happening again.”

--With assistance from Tara Lachapelle in New York. Editors: Jeff Sutherland, 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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