Bloomberg News

Most U.S. Stocks Fall in Thinnest Trading Day of 2012

March 12, 2012

Most U.S. stocks retreated, capping the thinnest trading day in 2012, as investors weighed whether a Chinese slowdown will lead to an easing of monetary policy.

Newmont Mining Corp. (NEM) and Schlumberger Ltd. (SLB) lost more than 1.9 percent as commodities fell. Financial companies slid on concern about how banks will perform in Federal Reserve stress tests and as the cost of insuring against default on European sovereign bonds rose to the highest in eight weeks. Gauges of utility and telephone providers in the S&P 500, which are least- tied to economic growth, gained. Apple Inc. (AAPL) rose 1.3 percent.

Seven stocks declined for every five rising on U.S. exchanges at 4 p.m. New York time, with about 5.2 billion shares changing hands. The S&P 500 advanced less than 0.1 percent to 1,371.09 today. The Dow Jones Industrial Average increased 37.69 points, or 0.3 percent, to 12,959.71. The Russell 2000 Index of smaller companies retreated 0.3 percent to 814.29.

“The U.S. is in good shape, yet China is a big question mark,” said Erick Maronak, chief investment officer of Victory Capital Management Inc. in New York. His firm oversees $28 billion. “How much will they have to ease to get things back on track? Europe is still going to be a huge work in progress. Now that there’s some greater visibility on the Greece situation, everyone starts looking at dominoes two and three.”

The S&P 500 advanced 2.1 percent in the past four weeks amid better-than-expected economic data and as companies beat analysts’ profit forecasts for a 12th straight quarter. The benchmark gauge is up 9 percent this year.

Chinese Economy

Equities swung between gains and losses as China had the biggest trade deficit in at least 22 years, the weakest January- February factory-production gain since 2009 and retail sales were below the median economist estimate. Euro-area finance ministers gather in Brussels to sign off on the 130 billion-euro ($170 billion) second package for Greece as they focus on Spain’s budget-cutting efforts and Portugal’s aid program.

Gauges of energy and raw material shares in the S&P 500 fell as the S&P GSCI index of 24 commodities dropped 0.4 percent. Newmont Mining, the largest U.S. gold producer, slid 2 percent to $55.75. Schlumberger, the world’s largest oilfield- services provider, declined 2.4 percent to $74.02.

“Some people are pointing to the evidence of a slower growth in China as the catalyst for today’s weakness,” said Mike Ryan, the New York-based chief investment strategist at UBS Wealth Management Americas. His firm oversees $754 billion. “Incremental demand for commodities still largely comes from Asia. The central banks are not going to be providing as much liquidity as they had in the past.”

Banks Slump

The KBW Bank Index (BKX) lost 0.7 percent as 17 of its 24 stocks retreated. JPMorgan Chase & Co. (JPM) slid 1.2 percent to $40.54. Regions Financial Corp. (RF) slumped 2.9 percent to $5.63.

Investors may be disappointed by how U.S. banks perform in Fed stress tests as examiners expect consumer-loan losses to surpass the industry’s estimates if there’s another severe recession, analysts say.

The Fed generally has predicted firms would suffer greater losses on mortgages and credit cards than what banks estimated in capital plans submitted in January, two people with knowledge of the situation said last week, without identifying specific firms. The divergence may endanger some of the $9 billion in dividend increases and share buybacks analysts estimate may be announced after the Fed releases results this week.

“The concern is that while banks may not have to raise capital, they might not be able to return capital as fast as shareholders want,” Walter Todd, who oversees $950 million as chief investment officer at Greenwood Capital in Greenwood, South Carolina, said in a telephone interview.

‘Greater Challenges’

Oracle Corp. (ORCL) slipped 1.4 percent to 29.71. The software maker was cut to hold from buy at Jefferies Group Inc., citing “greater challenges” to its engineered systems strategy.

The Bloomberg U.S. Airlines Index retreated 1.5 percent. United Continental Holdings Inc. (UAL) slumped 1 percent to $19.62. Southwest Airlines Co. declined 2.4 percent to $8.28. The shares were cut to neutral from buy at Bank of America Corp.

Dynegy Inc. (DYN) tumbled 35 percent to 50 cents, a record low. The third-largest independent U.S. power producer’s bankruptcy should be taken over by a court-approved trustee who will better protect creditors, the U.S. Trustee monitoring the case for the federal government said in court papers.

Companies which are least-dependent on economic activity rose today. Constellation Energy Group Inc. advanced 3 percent to $37.23. Wal-Mart Stores Inc. (WMT) added 1 percent to $60.68.

Apple rallied 1.3 percent to $552, a record high. The shares have risen 4.1 percent in four days.

Harley-Davidson

Harley-Davidson Inc. (HOG) added 2.6 percent to $48.11. The biggest U.S. motorcycle maker had its share-price estimate boosted to $50 from $46 by Citigroup Inc., which said the company’s retail sales have increased 16 percent to 18 percent so far in the first quarter.

Equifax Inc. (EFX) climbed 3.4 percent, the most in the S&P 500, to $44.09. The provider of consumer-credit information was increased to buy from neutral at SunTrust Robinson Humphrey Inc., which said the company is poised to deliver “sustainable above-average” growth in sales and earnings.

Transportation and industrial shares are diverging in the U.S., a signal that equity investors are starting to agree with what the bond market already knows: this economic recovery will remain sluggish for months to come.

The Dow Jones Transportation Average has fallen 4.2 percent from its six-month high on Feb. 3, while the Dow Jones Industrial Average (INDU) added 0.8 percent. The gauge of 20 shipping companies peaked before the rest of the market when the technology bubble popped in 2000 and began slipping into a bear market three months before broader benchmark indexes in 2007.

Bull Market

While Laszlo Birinyi, the founder of Birinyi Associates Inc., says falling transport stocks don’t signal an end to the three-year bull market that doubled the S&P 500, money managers at Robert W. Baird & Co. and Legg Mason Inc. say the 27 percent rise in the index since October may have gone too fast.

Transport stocks are falling as 10-year Treasury yields stay near 2 percent, with economists forecasting the slowest post-recession recovery since World War II.

“In a healthy market, everything is going in the same direction,” said Bruce Bittles, chief investment strategist at Milwaukee-based Robert W. Baird, which oversees $85 billion. “When that starts to diverge, that raises a flag that potential trouble may be brewing.”

Monster Beverage Corp. (MNST)’s escalating profit from energy drinks pumped full of caffeine and nitrous oxide may tempt acquirers to chase what would be the most expensive takeover in the industry’s history.

Priciest Valuation

After the stock more than doubled in the last year, Monster Beverage is valued at 20 times earnings before interest, taxes, depreciation and amortization, the priciest multiple of any North American soft-drink maker greater than $500 million, according to data compiled by Bloomberg that includes net debt.

“What Monster’s so successfully done in the last few years is proven that demand for energy drinks is fairly universal among young people,” Caroline Levy, a beverage and household products analyst for Credit Agricole Securities USA Inc. in New York, said in a telephone interview. “This business is now too big to ignore. If you’re a player in soft drinks, I think it’s very hard not to be in the highest-margin, highest-growth category out there.”

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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