Bloomberg News

U.S. Stocks Fall on Europe Concern, Pending Home Sales

March 27, 2013

U.S. stocks fell, after the Standard & Poor’s 500 Index yesterday rallied toward a record high, amid concern over Europe’s debt crisis and as pending American home sales slipped in February.

Banks fell as JPMorgan Chase & Co. and Citigroup Inc. lost at least 0.8 percent. Cliffs Natural Resources Inc. (CLF:US) tumbled 14 percent after Morgan Stanley downgraded the shares. Apple Inc. slumped 2 percent after Pacific Crest predicted it would miss revenue expectations. Humana Inc. and UnitedHealth Group Inc. rose at least 1.7 percent after the U.S. Medicare program was granted authority to raise insurers’ payments. AOL Inc. (AOL:US) surged 8.4 percent after Barclays Plc lifted the company’s rating.

The S&P 500 (SPX) dropped 0.1 percent to 1,562.85 at 4 p.m. in New York, paring an earlier decline of as much as 0.8 percent. The Dow Jones Industrial Average fell 33.49 points, or 0.2 percent, to 14,526.16. About 5.2 billion shares changed hands on U.S. exchanges, 18 percent below the three-month average.

“When you have typically light days, the market can get pushed around a little bit more on nothing,” Frank Ingarra, head trader at Greenwich, Connecticut-based NorthCoast Asset Management LLC, said in a telephone interview. His firm oversees $1.5 billion. “The market’s still poised to go up.”

Bull Market

The S&P 500 rallied yesterday to within two points of its record of 1,565.15 reached in October 2007, as orders for durable goods and home prices exceeded estimates. The benchmark gauge has traded above 1,560 on seven days since March 14, only to fall short of the record each time. The Dow climbed to another record yesterday, after first surpassing its 2007 all- time high on March 5.

The bull market in equities entered its fifth year this month as the S&P 500 more than doubled from its bottom in 2009, driven by an unprecedented three rounds of bond purchases by the Federal Reserve. The S&P 500 is up 9.6 percent for the year, and has gained 3.2 percent in March.

The Institute of International Finance said today banks in Portugal, Spain and Italy may come under funding pressure after a deal earlier this week in Cyprus rescued the island’s financial system at the expense of bank creditors.

European governments and the International Monetary Fund agreed Monday to lend Cyprus 10 billion euros ($13 billion) as long as the country liquidated its second-largest bank and forced losses on bank bondholders and deposits of more than 100,000 euros.

European ‘Mess’

“I don’t think the bottom’s going to drop out, but it’s not that simple to just say, ‘Cyprus, where is it, who cares?’” Robert Doll, chief equity strategist at Nuveen Asset Management LLC, said in an interview on Bloomberg TV’s “Surveillance” with Tom Keene and Scarlet Fu. He helps oversee $117 billion at the Chicago-based firm. “It took years for Europe to get into this mess. It will take years for Europe to get out.”

While the improving economy is driving the bull market in U.S. equities, Doll said gains may slow after the S&P 500 surged 130 percent since March 2009.

“We’re due for a rest and a rest doesn’t mean a big decline,” he said.

Fewer Americans signed contracts to purchase previously owned homes in February, indicating a pause in momentum for an industry that is helping power the economy. The index of pending home sales fell 0.4 percent to 104.8, the second-highest level since April 2010, after a revised 3.8 percent increase the prior month, the National Association of Realtors reported.

VIX, Banks

The Chicago Board Options Exchange Volatility Index (VIX), which measures the cost of using options as insurance against claims, rose 3 percent to 13.15 today. The KBW Bank Index dropped 0.6 percent, as 18 of the gauge’s 24 members retreated. JPMorgan slid 1.8 percent to $47.77 and Citigroup lost 0.8 percent to $44.46, pacing declines among financial firms.

Cliffs Natural Resources plunged 14 percent, the most in the S&P 500, to $18.46. Morgan Stanley cut its recommendation (CLF:US) on shares of the biggest U.S. iron-ore producer to underweight, the equivalent of sell, from equal weight. The company’s iron-ore business will be halved in the coming years because of increased supply in the Great Lakes area, analysts led by Evan Kurtz wrote in a note.

Separately, Credit Suisse Group AG cut its 12-month estimate on the share price to $10 from $20, while maintaining an underperform rating.

‘Relatively Soft’

Apple slumped 2 percent to $452.08. Pacific Crest analyst Andy Hargreaves said the company may miss revenue expectations during the second and third quarters, due to “relatively soft” sales of large-screen iPads and iPhones. Apple shares have slumped 15 percent this year, sliding to their lowest price in more than 13 months on March 4.

Dollar General Corp. (DG:US) fell 2.4 percent to $50.95. The discount retailer said 30 million of its shares will be sold in an underwritten secondary public offering. The offer is by certain existing shareholders and no shares are being sold by the company, Goodlettsville, Tennessee-based Dollar General said in a statement.

Best Buy Co. dropped 2.4 percent to $22.15. S&P Capital IQ cut its rating on the electronics retailer to sell from hold.

Humana jumped 3 percent to $68.72 and UnitedHealth rose 1.7 percent to $56.62, after congressional researchers said the U.S. Medicare program has the authority to raise payments to insurers.

AOL, the Web publisher that owns the Huffington Post and TechCrunch, climbed 8.4 percent to $39.20. Barclays raised its rating on the company to overweight from equalweight, saying profit (AOL:US) will increase faster than analysts’ estimates on cost- cutting and modest revenue growth.

Mattress Firm Holding Corp. rallied 12 percent to $34.77. Raymond James equity analyst Budd Bugatch lifted his rating on the Houston-based retailer to outperform from market perform.

SAIC Inc. advanced 3.9 percent to $13.32 after the eighth- largest contractor to the U.S. government said late yesterday it will pay a special dividend of $1 per share. The company forecast full-year earnings of $1.16 to $1.33 a share.

To contact the reporter on this story: 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

  • CLF
    (Cliffs Natural Resources Inc)
    • $17.7 USD
    • 0.47
    • 2.65%
  • AOL
    (AOL Inc)
    • $38.82 USD
    • -0.20
    • -0.52%
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