Commodity (S5MATR), technology and industrial shares had the biggest losses among 10 S&P 500 groups. Alcoa Inc. and Caterpillar Inc. (CAT) slid at least 1.7 percent. Apple Inc. (AAPL) slumped 1.9 percent, snapping a seven-day rally. Bank of America Corp. (BAC) and Citigroup Inc. (C) dropped more than 1.8 percent to pace declines in financial shares. MetroPCS Communications (PCS) Inc., the pay-as-you-go wireless carrier, sank 4.9 percent after the shares were downgraded.
The S&P 500 fell 0.6 percent to 1,361.01 at 12:41 a.m. New York time, falling for a second day. The Dow Jones Industrial Average slid 54.68 points, or 0.4 percent, to 12,922.89. The Nasdaq Composite Index dropped 1 percent, led by Apple. More than 3.1 billion shares changed hands on U.S. exchanges.
“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. Euro-area services output shrank more than estimated, led by Italy and Spain. In the U.S., orders to U.S. factories decreased for the first time in three months. Separately, the Institute for Supply Management’s index of non-manufacturing industries rose to 57.3 in February from 56.8 a month earlier.
Stock Rally
Stocks advanced last week as data on housing and jobs improved. The S&P 500 (SPX) fell on March 2 amid concern that a rally to the highest level since 2008 has outpaced growth prospects. It trades at 14.1 times reported earnings, the highest since August while still below the average since 1954 of 16.4 times.
“It’s just not an environment that we feel like sticking our neck out to take on a lot of risk,” said Michael Mullaney, who helps manage $9.5 billion at Fiduciary Trust in Boston. “We’ve been scratching our heads a little bit after the big run-up in equities. We just don’t see a strong enough global economic background to support where prices are right now.”
Companies most-tied to the economy tumbled, sending the Morgan Stanley Cyclical Index down 1.7 percent. Alcoa (AA) lost 3.3 percent to $9.91. Caterpillar slid 1.7 percent to $110.60.
The KBW Bank Index (BKX) of 24 stocks declined 1.6 percent. Bank of America slumped 2.2 percent to $7.95. Citigroup lost 1.8 percent to $33.50 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 Reverses Gain
Apple sank 1.9 percent to $534.94, after rallying 6.3 percent in seven days. The company’s market capitalization topped $500 billion for the first time last week as investors anticipated a sales boost from the company’s latest iPad tablet computer, due on March 7.
MetroPCS Communications slipped 4.9 percent to $10.04, while Leap Wireless International Inc. (LEAP) declined 8.2 percent to $9.69. Sanford C. Bernstein & Co. cut its recommendation for the stocks, saying any takeover bids for the carriers would be “fraught with challenges.”
CF Industries Holdings Inc. (CF) fell 4.9 percent to $179 after being cut to “neutral” from “buy” at Citigroup Inc. and removed from the firm’s “Top Picks Live” list.
Zynga Inc. (ZNGA) slipped 6 percent to $13.81. 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.
AIG Rallies
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 3.5 percent, the biggest advance in the S&P 500, to $44.22. 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.
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.
Annual Records
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.”
source http://www.bloomberg.com
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