Bloomberg News

S&P 500 Caps Biggest Two-Day Decline Since January 27

March 05, 2012

Traders at the New York Stock Exchange on March 2, 2012. Photographer: Justin Lane/EPA/Landov

Traders at the New York Stock Exchange on March 2, 2012. Photographer: Justin Lane/EPA/Landov

U.S. stocks fell, giving the Standard & Poor’s 500 Index its biggest two-day loss since January, as China cut its economic growth target and orders to American factories decreased for the first time in three months.

Commodity (S5MATR), technology and industrial shares dropped the most among 10 groups in the S&P 500. Alcoa (AA) Inc. and Caterpillar Inc. (CAT) fell at least 2.1 percent. Apple Inc. (AAPL) slumped 2.2 percent, snapping a seven-day advance. Bank of America Corp. (BAC) and Citigroup Inc. (C) dropped more than 1.2 percent. International Business Machines Corp. closed above $200 (IBM) on a split-adjusted basis for the first time, after rallying 9.1 percent in 2012.

The S&P 500 retreated 0.4 percent to 1,364.33 at 4 p.m. New York time, dropping 0.7 percent in two days. The Dow Jones Industrial Average decreased 14.76 points, or 0.1 percent, to 12,962.81. The Nasdaq Composite Index dropped 0.9 percent to 2,950.48. About 6.1 billion shares changed hands on U.S. exchanges, or 9 percent below the three-month average.

“It’s wise to take a little money off the table,” said David Joy, the Boston-based chief market strategist at Ameriprise Financial Inc. His firm oversees $631 billion. “Some of the easy gains have already been made. We’re back to focusing on the economic fundamentals. China saying that they are targeting 7.5 percent growth raises concern of a hard landing.”

Equities joined a global slump as China pared its growth target to 7.5 percent from an 8 percent goal in place since 2005. In the U.S., data on orders to factories signaled manufacturing is cooling. Bookings (TMNOCHNG) fell 1 percent in January after a revised 1.4 percent gain in December that was larger than previously estimated.

Economic Surprise

A drop in Citigroup’s Economic Surprise Index for the U.S. is one of several concerns for the market in the short-term, according to Tobias Levkovich, chief U.S. equity strategist at Citigroup. The index, which measures the extent to which economic reports beat or miss forecasts, fell to 45.10 (CESIUSD) on March 2 from 83.70 on Feb. 3. The S&P 500 (SPX) rose 8.5 percent this year amid better-than-estimated economic data.

“Too many data points are signaling near-term caution, and sticking to our disciplines always trumps emotions,” Levkovich wrote. Because the gauge is based on performance compared with estimates, “one does not have to predict any bad economic data in the months ahead to believe the surprise index will move lower from current extended levels,” which “may put some near- term downward pressure on stock prices.”

Companies most-tied to the economy slumped, sending the Morgan Stanley Cyclical Index down 1.3 percent. Alcoa, the biggest U.S. aluminum producer, lost 3.6 percent to $9.87. Caterpillar, the largest construction and mining-equipment maker, slid 2.1 percent to $110.09.

Banks Slump

The KBW Bank Index (BKX) declined 1.3 percent. Bank of America slumped 2 percent to $7.97. Citigroup lost 1.2 percent to $33.68 after naming board member Michael O’Neill to be chairman to succeed Richard Parsons, who is stepping down after overseeing the company’s recovery from near-collapse in 2008.

Apple sank 2.2 percent to $533.16, sending its market capitalization below $500 billion. The stock rallied 6.3 percent in seven days as investors anticipated a sales boost from the company’s latest iPad tablet computer, due on March 7.

Zynga Inc. (ZNGA) tumbled 4.9 percent to $13.97. The biggest developer of games for social-networking sites was cut to neutral from overweight by JPMorgan Chase & Co., meaning the shares are expected to perform in line with the stocks the analyst covers over the next six-to-twelve months.

MetroPCS Communications Inc. (PCS) decreased 5.7 percent to $9.96, while Leap Wireless International Inc. (LEAP) retreated 7.5 percent to $9.76. Sanford C. Bernstein & Co. cut its recommendation for the shares.

CF Industries

CF Industries Holdings Inc. (CF) fell 5.5 percent to $177.98 after being cut to “neutral” from “buy” at Citigroup Inc. and removed from the firm’s “Top Picks Live” list.

IBM, the world’s biggest computer-services provider, rose for a third day. The shares added 0.9 percent to $200.66.

American International Group Inc. (AIG) rallied 2 percent to $30.39. The insurer that received a bailout after the collapse of Lehman Brothers Holdings Inc. is selling $6 billion of AIA Group Ltd. shares to help pay back the U.S. government.

Big Lots Inc. (BIG) climbed 3.4 percent to $44.15. The discount retailer was raised to “buy” from “neutral” at Northcoast Research. The 12-month share-price estimate is $53.

Corporate profits that doubled since 2009 have left the S&P 500 cheaper than at all 34 peaks since 1989, even as options traders push the cost of protecting against losses to the highest in four years.

Four-Year High

The S&P 500 rose 102 percent since March 2009 to an almost four-year high last week. Valuations are lower than at every 52- week peak since 1989. Traders have pushed the price of contracts that pay should the S&P 500 drop 20 percent to the most since 2007 compared with ones betting on a rally of the same size.

Rising oil prices and concern European leaders have yet to contain the credit crisis are keeping investors from paying more for profits, which are projected to reach annual records through 2013. Bears say equities aren’t cheap because the profit estimates are too optimistic. Bulls say shrinking price-earnings ratios provide a margin of safety should gains in the U.S. economy fail to match forecasts.

“Stocks have just gotten too cheap,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, said in a telephone interview. His firm oversees $160 billion. “We were worrying about a Chinese hard landing that didn’t happen. We worried about a U.S. double dip and that didn’t happen. We worried about Europe disintegrating, that didn’t happen. The worst risks have passed.”

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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