Bloomberg News

U.S. Stocks Fall After S&P 500 Rallies to Four-Year High

March 27, 2012

Traders work on the floor of the New York Stock Exchange in New York. Photographer: Scott Eells/Bloomberg

Traders work on the floor of the New York Stock Exchange in New York. Photographer: Scott Eells/Bloomberg

U.S. stocks retreated as a report showing American consumer confidence near the strongest level in a year failed to encourage investors after the Standard & Poor’s 500 Index advanced to an almost four-year high.

Losses accelerated in the final 15 minutes of trading as financial companies slumped. Bank of America Corp. (BAC:US) lost 3.3 percent as Robert W. Baird & Co. cut its rating. Apollo Group Inc. (APOL:US) fell 8.5 percent on new enrollment concern. Homebuilder Lennar Corp. (LEN:US) surged 4.7 percent amid better-than-estimated earnings. Pfizer Inc. (PFE:US) added 1.5 percent as Goldman Sachs Group Inc. raised the possibility of a full breakup (PFE:US) of the company.

The S&P 500 lost 0.3 percent to 1,412.52 at 4 p.m. New York time, after rising 1.7 percent in two days. The Dow Jones Industrial Average slid 43.90 points, or 0.3 percent, to 13,197.73. About 6.1 billion shares changed hands on U.S. exchanged today, or 8.8 percent below the three-month average.

“There’s maybe some short-term vulnerability, but it doesn’t really dent my longer-term optimism,” said Liz Ann Sonders, the New York-based chief investment strategist at Charles Schwab Corp. Her firm has $1.81 trillion in client assets. “We had a huge day yesterday. So, it’s not a big surprise not to see an immediate follow-through.”

The S&P 500 yesterday erased last week’s loss. The index rose 3.4 percent in March, poised for a fourth straight monthly gain, the longest winning streak since 2009. It trades for 14.6 times (SPX) reported earnings, the highest valuation level since July while below the average since 1954 of 16.4.

Economic Data

The Conference Board’s confidence index dropped to 70.2 from a revised 71.6 reading in February that was higher than initially reported. The median forecast of economists surveyed by Bloomberg News called for a decrease to 70. The S&P/Case- Shiller index of property values in 20 cities fell 3.8 percent from a year earlier, after decreasing 4.1 percent in December.

“The trend of economic data has been improving and that’s helped provide a better backdrop for investors to feel comfortable putting money into stocks,” Michael Sheldon, chief market strategist at RDM Financial Group in Westport, Connecticut, which oversees $650 million, said in a telephone interview. “Yet we really haven’t seen much in terms of profit taking. It could be choppy.”

Seven out of 10 groups in the S&P 500 fell. Financial shares had the biggest decline among 10 industries, dropping 1 percent. Bank of America (BAC:US) dropped 3.3 percent to $9.60 after being downgraded to neutral at Robert W. Baird. The 12-month share-price estimate is $10.

‘Volatile’

Apollo Group slumped 8.5 percent, the most in the S&P 500, to $39.54. Co-Chief Executive Officer Gregory Cappelli told investors on a conference call that new enrollments will continue to be “volatile.” Credit Suisse Group AG cut its recommendation for the shares to neutral.

A measure of homebuilders in S&P indexes gained 2.9 percent. Lennar rallied 4.7 percent to $27.63. Net income for the three months ended Feb. 29 fell to $15 million, or 8 cents a share, from $27.4 million, or 14 cents, a year earlier. Lennar was expected to earn about 5 cents (LEN:US) a share, the average estimate of 20 analysts in a Bloomberg survey.

Pfizer climbed 1.5 percent, the most in the Dow, to $22.50. The shares (PFE:US) have increased 8.3 percent since July 6, the day before Pfizer Chief Executive Officer Ian Read said the New York-based company was exploring strategic alternatives for its animal health and nutrition businesses.

Read, at a recent meeting with Goldman analysts, indicated he may be willing to further split up the company after selling or spinning off those two units, Jami Rubin, a Goldman Sachs analyst, wrote in a note to investors.

$20 Billion

American International Group Inc. (AIG:US) advanced 2.1 percent to $29.67 after Deutsche Bank AG said the insurer may repurchase $20 billion of stock in the next 12 months.

Walgreen Co. (WAG:US) added 1.3 percent to $34.80. The largest U.S. drugstore chain reported second-quarter profit that topped analysts’ estimates after new grocery and household items boosted sales.

Opnext Inc. (OPXT:US) surged 53 percent, the most in the Russell 2000 Index, to $1.73. The maker of optical components for communications networks will be purchased by Oclaro Inc. in an all-stock deal. Holders of Fremont, California-based Opnext will get 0.42 shares of Oclaro stock, or about $1.96, for every Opnext share they own.

JDS Uniphase Corp. (JDSU:US) gained 3.3 percent to $14.79 and Finisar Corp. (FNSR:US) advanced 3.8 percent to $20.14 after Jefferies & Co. said they may gain market share while Opnext and Oclaro integrate their businesses.

Best Since 1998

The S&P 500 has climbed 12 percent since the end of last year, poised for the best first quarter since 1998, amid better- than-forecast earnings and economic data. Financial companies and computer makers rose the most among 10 groups, surging at least 21 percent so far in 2012.

Peter Lee, the New York-based chief technical analyst for UBS AG, said fund managers’ purchases of the best-performing stocks at the end of the quarter are likely to push the S&P 500 toward his 2012 target range of 1,440 to 1,450 sooner than the second half of the year, as he had anticipated.

The S&P 500 would need to rise 1.7 percent to reach 1,440 from yesterday’s closing level of 1,416.51. A failure of the benchmark index to hold gains above these levels may trigger a pullback of 5 percent to 10 percent, he said.

“When the quarter has been extremely strong, these institutional investors are pressured or motivated to dress up their portfolios to show clients that they actively participated in the marketplace during the quarter,” Lee wrote in a note yesterday. “The focus on momentum stocks and sectors leaves the overall market vulnerable for a correction.”

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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Companies Mentioned

  • BAC
    (Bank of America Corp)
    • $15.52 USD
    • 0.00
    • 0.0%
  • APOL
    (Apollo Education Group Inc)
    • $29.15 USD
    • 0.53
    • 1.82%
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