Bloomberg News

Most U.S. Stocks Fall as World Bank Offsets Apple Rally

January 16, 2013

(Corrects Boeing aircraft model under ‘Boeing Slumps’ subhead.)

Most U.S. stocks fell, following yesterday’s gain, as a cut in the World Bank’s growth forecasts offset a rally in Apple Inc. as investors watched earnings.

Boeing Co. (BA:US) slumped 3.4 percent as All Nippon Airways Co. and Japan Airlines Co., the world’s largest users of the 787 jets, grounded their entire fleet of Dreamliners. Custody banks Bank of New York Mellon Corp. and Northern Trust Corp. (NTRS:US) dropped at least 2.7 percent. Apple, which slid below $500 a share yesterday for the first time in 11 months, rallied 4.2 percent to halt a three-day decline. Goldman Sachs Group Inc. added 4.1 percent after the bank’s profit almost tripled.

Three stocks retreated for every two rising on U.S. exchanges at 4 p.m. New York time. The Standard & Poor’s 500 Index advanced less than 0.1 percent to 1,472.63. The Dow Jones Industrial Average declined 23.66 points, or 0.2 percent, to 13,511.23. About 5.6 billion shares changed hands on U.S. exchanges, or 8.6 percent below the three-month average.

“The cuts in growth forecasts are reminders that there’s still work to be done,” said Brad Sorensen, director of market and sector analysis at San Francisco-based Charles Schwab Corp. His firm has $1.92 trillion in client assets. “In the U.S., it’s early to talk about the earnings season, but so far we’re relatively pleased with what we’ve seen. We’ve had a good start to the year in stocks. There’s very little doubt that there’s quite a bit of money on the sidelines that could provide a nice boost higher.”

Growth Forecast

The World Bank cut its global growth forecast for this year as austerity measures, high unemployment and low business confidence weigh on economies in developed nations. German Chancellor Angela Merkel’s government cut its growth forecast for Europe’s biggest economy. Luxembourg Prime Minister Jean- Claude Juncker said the strength of the euro poses a threat to the region’s economy.

The U.S. economy picked up across much of the country last month, boosted by auto and home sales, even as the outlook for unemployment showed few signs of improvement, the Federal Reserve said. Industrial production in the U.S. climbed for a second month in December as demand picked up for business equipment, showing factories expanded even as lawmakers battled over the federal budget.

Earnings Season

Besides JPMorgan and Goldman Sachs, nine other companies in the S&P 500 were scheduled to report results today. Almost 75 percent of the 39 S&P 500 companies which reported quarterly results beat analysts forecasts. Fourth-quarter profits grew 2.5 percent, according to analysts’ estimates compiled by Bloomberg. That would be the second-slowest quarterly growth since 2009, the data show.

The S&P 500 has risen 3.3 percent so far this year, extending 2012’s 13 percent surge. Yet the benchmark gauge is trading at 14.8 times reported earnings, compared with an average of 16.5 since 1954, according to data compiled by Bloomberg.

“On the positive side of the ledger we’ve got at least what I consider to be undemanding valuations for stocks in general,” said Norm Conley, chief executive officer at St. Louis-based J.A. Glynn & Co, which manages about $975 million. “We’ve got earnings season kicking off here and so far no huge bad surprise, so that is an incremental positive.”

The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, lost 1 percent to 13.42. Earlier today, the gauge fell to the lowest level since 2007.

Boeing Slumps

Boeing slumped 3.4 percent to $74.34. The 787 faces fresh scrutiny after the Japanese airlines grounded almost half the world’s Dreamliner fleet for at least two days following an emergency landing. All Nippon Airways pilots on a domestic flight got battery-fault warnings and saw smoke in the cockpit, the U.S. National Transportation Board said today.

The groundings added to the questions plaguing a model that was targeted for a U.S. assessment because of a Jan. 7 fire in a lithium-ion battery pack on a Japan Airlines plane in Boston.

BNY Mellon slumped 2.8 percent to $26.04 and Northern Trust dropped 5.7 percent to $49.78. Both banks have responded to near-zero interest rates by reducing staff and expenses to protect profit margins. While the banks benefited from rising stock prices, which increase fees for overseeing and managing investor money, low interest rates and slow capital-markets activity have hurt their ability to expand earnings.

Chipotle, Dell

Chipotle Mexican Grill Inc. (CMG:US) fell 5.5 percent to $280.94 after reporting preliminary fourth-quarter profit that trailed analysts’ estimates.

Dell Inc. (DELL:US) dropped 4.3 percent to $12.61, after rallying 21 percent over the last two days. The third-largest PC maker is discussing a leveraged buyout with private-equity firms TPG Capital and Silver Lake, a person with knowledge of the matter said this week.

Technology, which comprises the biggest group in the S&P 500, rose the most among 10 industries. Apple (AAPL:US) rose 4.2 percent to $506.09, after slumping 7.2 percent over the previous three days. The company introduced installment payment plans for buyers of iPhones and MacBook laptops in China as it struggles to compete with low-cost devices in the world’s largest computer and mobile-phone market.

Bank Profits

Goldman Sachs rose 4.1 percent to $141.09. Chief Executive Officer Lloyd C. Blankfein, 58, has undertaken a $1.9 billion expense-reduction effort since mid-2011 and said he expected earnings growth to resume when the economy and markets improved. A stock-market rebound and a $500 million profit from selling a hedge fund-administration unit helped revenue recover from the lowest first half since 2005.

JPMorgan Chase & Co. (JPM:US) gained 1 percent to $46.82. The largest U.S. bank by assets said fourth-quarter profit (JPM:US) rose 53 percent, beating analysts’ estimates as mortgage revenue more than doubled and the lender set aside less for future losses.

Genworth Financial Inc. (GNW:US) rallied 8.9 percent to $8.85. The insurer that named a new chief executive officer this month said it is reorganizing to separate most of the company from the mortgage-guaranty operation that saddled the firm with losses.

Smith & Wesson Holding Corp. rose 5.7 percent to $8.91. Sturm Ruger & Co. added 5 percent to $50.38. President Barack Obama proposed the most ambitious set of gun control proposals in decades, calling for a renewal of a ban on assault weapons and high-capacity ammunition magazines and setting out 23 executive actions he’ll take such as ordering agencies to share data for background checks and addressing mental health issues.

Transportation Stocks

“These proposals were widely expected to occur today,” said Rommel Dionisio, analyst at Wedbush Securities based in New York.

Constellation Brands Inc. added 6.2 percent to $38.65 after being rated buy in new coverage at Buckingham Research by equity analyst Alice Longley.

The Dow is better positioned to set a record now that its transportation-stock counterpart has done so, according to Richard Moroney, editor of the Dow Theory Forecasts newsletter. The Dow Jones Transportation Average has led the Dow industrials throughout the rally which started in March 2009. Yesterday the Dow transports closed at 5,639.64, an all-time high. The average had climbed 6.3 percent for the year, its best performance through Jan. 15 since 1987.

“It’s a legitimate move,” Moroney, who serves as the chief investment officer at Horizon Investment Services LLC as well as the newsletter’s editor, said yesterday in a telephone interview. “I take it as a positive.”

All 20 companies in the Dow transports had gains for the year as of yesterday. Delta Air Lines Inc. (DAL:US), the world’s second- largest airline, set the pace by rising 15 percent. Most beat the Dow industrials’ 3.3 percent advance for 2013 as well.

Fourth-quarter earnings reports will largely determine whether the industrials reach a record any time soon, according to Moroney. The average would have to advance 4.7 percent to surpass its peak of 14,164.53 in October 2007. It’s 0.6 percent away from beating last year’s high.

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Sarah Pringle in New York at springle1@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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Companies Mentioned

  • BA
    (Boeing Co/The)
    • $134.81 USD
    • 0.20
    • 0.15%
  • NTRS
    (Northern Trust Corp)
    • $67.85 USD
    • 0.11
    • 0.16%
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