TOPIC: S&P 500 Has Biggest Two-Day Decline in 2012 on Eco
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S&P 500 Has Biggest Two-Day Decline in 2012 on Economic Concern
2012-03-05 19:48:10.710 GMT
By Rita Nazareth
March 5 (Bloomberg) -- U.S. stocks fell, giving the Standard & Poor’s 500 Index its biggest two-day drop in 2012, after China reduced its economic growth target and orders to American factories decreased for the first time in three months.
Commodity, technology and industrial shares had the biggest losses among 10 S&P 500 groups. Alcoa Inc. and Caterpillar Inc.
slid at least 1.8 percent. Apple Inc. slumped 2.4 percent, snapping a seven-day rally. Bank of America Corp. and Citigroup Inc. each dropped 1.7 percent to pace declines in financial shares. Zynga Inc., the biggest developer of games for social- networking sites, tumbled 5.8 percent after being downgraded.
The S&P 500 retreated 0.5 percent to 1,362.45 at 2:46 p.m.
New York time. The index dropped 0.9 percent in two days, the biggest decline since Dec. 28. The Dow Jones Industrial Average decreased 25.88 points, or 0.2 percent, to 12,951.69 today. The Nasdaq Composite Index dropped 1.1 percent, led by Apple. More than 4.4 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. In the U.S., data on orders to factories signaled manufacturing is cooling. Bookings fell 1 percent in January after a revised 1.4 percent gain in December that was larger than previously estimated.
Stocks advanced last week as data on housing and jobs improved. The S&P 500 fell on March 2 amid concern that a rally to the highest level since 2008 has outpaced growth prospects.
It trades at 14 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 which are most-dependent on economy growth tumbled, sending the Morgan Stanley Cyclical Index down 1.4 percent. Alcoa, the biggest U.S. aluminum producer, lost 3.3 percent to $9.90. The shares fell the most in the Dow.
Caterpillar, the largest construction and mining-equipment maker, slid 1.8 percent to $110.42.
The KBW Bank Index declined 1.4 percent. Bank of America slumped 1.7 percent to $8. Citigroup lost 1.7 percent to $33.53 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 sank 2.4 percent to $532.17, 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.
Zynga tumbled 5.8 percent to $13.84. The company 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.
MetroPCS Communications Inc. slipped 5 percent to $10.03, while Leap Wireless International Inc. declined 7.6 percent to $9.75. 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. fell 5.4 percent to $178.10 after being cut to “neutral” from “buy” at Citigroup Inc.
and removed from the firm’s “Top Picks Live” list.
American International Group Inc. rallied 1.2 percent to $30.16. 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. climbed 3 percent to $44. 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.
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.”
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