April 20 (Bloomberg) -- U.S. stocks declined following six straight weeks of gains as concern grew that credit losses are worsening and lower commodity prices dragged down energy and material producers.
Bank of America Corp., the lender that lost three-quarters of its market value in the past year, tumbled 16 percent as rising charge-offs for uncollectible loans overshadowed better- than-estimated earnings. Citigroup Inc. dropped 15 percent after Goldman Sachs Group Inc. said the bank's credit losses are growing at a "rapid rate." U.S. Steel Corp. and Exxon Mobil Corp. declined as oil and industrial metal prices decreased.
"The market seems to follow the direction of financial stocks one way or another," said Keith Wirtz, who helps oversee $20 billion as chief investment officer at Fifth Third Asset Management in Cincinnati. "There are definitely more writedowns ahead and more challenges for the loan portfolios, particularly in the consumer side of the equation."
The Standard & Poor's 500 Index slid 3.4 percent to 839.78 at 12:27 p.m. in New York, extending its drop after the Conference Board's index of leading economic indicators fell more than forecast. The Dow Jones Industrial Average lost 227.8 points, or 2.8 percent, to 7,903.53. The Russell 2000 Index of small companies retreated 4.9 percent.
The S&P 500 wrapped up its steepest six-week gain since 1938 on April 17, as profits at Goldman Sachs and JPMorgan Chase & Co. ignited gains in bank shares. The rally may falter as a prolonged recession dents corporate earnings, George Hoguet, global investment strategist at Boston-based State Street Global Advisors Inc., said in an April 18 interview.
'Pullback'
The S&P 500 surged 29 percent from a 12-year low on March 9 through last week as expectations grew that the worst of a global recession is past. The rally came even as analysts estimate that profits at S&P 500 companies decreased for the seventh straight quarter in the January to March period, the longest stretch of declines since at least the Great Depression.
"We're likely to see a pullback in stock markets as earnings disappoint," Hoguet said in an interview in Shanghai. "We are undergoing a severe shock and the global economy will take several quarters to get back to trend growth." State Street Global Advisors oversees $1.4 trillion.
Bank of America fell $1.70 to $8.90 even after saying first-quarter net income more than tripled on gains from home refinancing and trading. Reserves for future loan losses increased 57 percent to $13.4 billion since the end of December. Charge-offs for uncollectible loans more than doubled to $6.94 billion from the same period a year earlier.
Citigroup's Credit Losses
Citigroup declined 54 cents to $3.11. The bank's credit losses are growing at a "rapid rate," undermining Chief Executive Officer Vikram Pandit's efforts to stabilize the company, according to Goldman Sachs.
While Citigroup posted first-quarter net income of $1.6 billion last week, the New York-based bank suffered an "underlying" loss of 38 cents a share, Richard Ramsden, a Goldman Sachs analyst, wrote in a research note dated yesterday. He repeated a "sell" rating on the stock.
American International Group Inc. fell 13 percent to $1.41. The insurer bailed out by the U.S. agreed to sell preferred stock and warrants for common shares to the government in return for access to $29.8 billion.
Capital One, Lennar Drop
Capital One Financial Corp. dropped 17 percent after the McLean, Virginia-based credit card lender was cut to "neutral" from "buy" at Goldman Sachs.
Lennar Corp. slumped 16 percent to $7.83 as the fourth biggest U.S. homebuilder by revenue said it has entered agreements for the possible sale of up to $275 million in Class A common stock.
Obama administration officials signaled there may be no need to request more financial-rescue funds from Congress as several banks plan to return taxpayer money and others are pushed to tap private markets first. The White House chief of staff, Rahm Emanuel, said while he had not seen results of stress tests on the 19 biggest banks, he believed the White House won't have to request more bailout funds.
"The first resort for more capital is going to the private markets," by issuing new equity or swapping some liabilities into stock that dilutes other stakeholders, National Economic Council Director Lawrence Summers said.
Global banks are likely to realize about $400 billion more in losses on soured assets, requiring further injections of government capital, according to JPMorgan mortgage-bond analysts led by Matthew Jozoff in a report dated April 17.
Earnings Season
International Business Machines Corp. slipped 1.1 percent to $100.21. After the close of trading, IBM may say that it had a profit of $1.66 per share last quarter, according to analysts' projections compiled by Bloomberg. Texas Instruments Inc., the second-biggest U.S. chipmaker, is also scheduled to report earnings today. The shares slipped 3.4 percent to $17.36.
Gauges of energy and raw-material producers fell by more than 3.5 percent as crude oil sank the most in seven weeks as a stronger dollar reduces the appeal of commodities. Copper prices also declined.
Exxon Mobil, the world's largest oil company, fell 1.3 percent to $65.86. ConocoPhillips, the second-largest U.S. oil refiner, declined 4.8 percent to $38.23. U.S. Steel Corp. plunged 8.9 percent to $27.31.
Crude oil for May delivery fell $4.01, or 8 percent, to $46.32 a barrel on the New York Mercantile Exchange. Copper futures for July delivery lost 3.8 percent, headed for the biggest drop for a most-active contract since March 30.
Sun Takeover
Sun Microsystems Inc. surged 36 percent, the biggest gain in the S&P 500, to $9.12 after Oracle Corp. agreed to buy the fourth-biggest server maker for $9.50 a share in cash. The transaction is valued at approximately $7.4 billion.
PepsiCo Inc., the world's second-largest soft-drink maker, offered about $6 billion in cash and stock to buy out other shareholders of its two biggest bottlers to gain greater control over product sales in North America. The shares slipped $2.05 to $50.08. Pepsi Bottling Group Inc. rallied 21 percent to $30.55 for the second-biggest advance in the index.
Nouriel Roubini, the New York University professor who predicted the financial crisis, said that he was "still bearish" and that an economic recovery is going to take "longer than expected." Corporate earnings will "surprise on the downside," Roubini said in a speech in Hong Kong today. "Lots of banks, even the better ones, are going to be in trouble."
The index of U.S. leading economic indicators in March fell more than forecast, indicating any recovery from what may be the longest recession in the postwar era is still many months away.
The Conference Board's gauge fell 0.3 percent after a 0.2 percent drop in February that was smaller than previously estimated, the New York-based research group said today. The index points to the direction of the economy over the next three to six months.
To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net .
No comments:
Post a Comment