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Stocks Fall, Send S&P To 12-Year Low
By Lynn Thomasson, Bloomberg
U.S. stocks fell, sending the Standard & Poor’s 500 Index to a 12-year low, as concern that the deepening recession will erode earnings offset the government’s pledge to give more capital to banks.
Hewlett-Packard Co. and Intel Corp. slid at least 5.4 percent as Morgan Stanley said technology shares are the most vulnerable among economically sensitive industries. U.S. Steel Corp. led a retreat in steelmakers after UBS AG said the group has raised output too quickly. Bank of America Corp. rose 3.2 percent and Citigroup Inc. climbed 9.7 percent as concern eased that the U.S. government will seize control of the lenders.
The S&P 500 declined 3.5 percent to 743.33, its lowest close since April 1997. The six-day losing streak in the U.S. stock benchmark ranks as its longest since October. The Dow Jones Industrial Average tumbled 250.89 points, or 3.4 percent, to 7,114.78, its lowest since May 1997. The Russell 2000 Index lost 4 percent.
“Many investors simply can’t contemplate any more stock market risk in their portfolios,” said Fritz Meyer, the Denver- based senior market strategist for Invesco Aim, which oversees $357 billion. “Sentiment in the market is very weak and negative.”
Bank of America and Citigroup each fell more than 68 percent this year, leading the S&P 500 to an 18 percent drop in the worst start to a year. President Barack Obama and Treasury Secretary Timothy Geithner have failed to assuage investors with a $787 billion economic stimulus plan comprised of tax breaks and government spending.
Stress Tests
Financial shares led the market higher at the open, rising as much as 4.6 percent collectively, after U.S. regulators said they will begin examining which banks have enough capital to survive a deeper recession. Banks that need more funds after so- called stress tests and cannot raise the money from private investors will be able to tap taxpayer funds.
Losses of at least 11 percent in shares of Nucor Corp., U.S. Steel and AK Steel Holding Corp. pushed a group of raw-materials producers in the S&P 500 to a 6.2 percent tumble, the most among 10 industries.
Steelmakers need to limit supply to support a “sustained recovery,” said UBS analyst Andrew Snowdowne in a research report. He cut his rating on ArcelorMittal, the world’s biggest steelmaker, to “neutral” from “buy,” while SSAB Svenskt Staal AB, the largest supplier of high-tensile steel, was reduced to “sell” from “neutral.”
Morgan Stanley strategist Jason Todd advised clients to remain “underweight” technology and raw-materials companies as the global economy continues to deteriorate.
‘Sell the Rally’
“Sell the recent rally,” Todd wrote. “A turnaround in profitability will not come quickly.”
The S&P 500 Information Technology Index, which has lost 8.7 percent this year for the second-best performance among 10 industries, fell 4.4 percent today.
Hewlett-Packard, the world’s largest personal-computer maker, declined 6.3 percent to $29.28 for a fifth straight day of losses. Intel, the biggest chipmaker, sank 5.5 percent to $12.08.
“We’re still being governed by how deep the recession will be,” said Mike Ryan, head of wealth management research for the Americas at UBS Financial Services Inc. “There just don’t seem to be any clear signs that some of the problems have run their course.”
The MSCI Asia Pacific Index increased 0.3 percent today and Europe’s Dow Jones Stoxx 600 Index slipped 0.9 percent. Yields on benchmark 10-year U.S. Treasury notes were little changed at 2.78 percent, according to BGCantor Market Data, as the government prepared to sell a record amount of notes this week.
Health-Care Retreat
Humana Inc. fell the most since March after the U.S. government proposed fee increases of less than 1 percent to companies providing subsidized health coverage for the elderly.
S&P 500 health-care stocks collectively lost 2.5 percent. Humana tumbled 24 percent to $30.83 for the biggest drop in the S&P 500. The second-largest provider of U.S.-funded health insurance said the new rates, scheduled for 2010, would have a “significant adverse impact.”
General Electric Co. retreated 5.7 percent to $8.85, the lowest price since March 1995. The company’s dividend is “highly vulnerable to a material cut” as its finance arm GE Capital may require additional equity, Deutsche Bank analyst Nigel Coe wrote in a Feb. 22 note.
Disappearing Dividends
The fastest reduction in U.S. dividends since 1955 is depriving investors of the only thing that gave stocks an advantage over government bonds in the last century.
U.S. equities returned 6 percent a year on average since 1900, inflation-adjusted data compiled by the London Business School and Credit Suisse Group AG show. Take away dividends and the annual gain drops to 1.7 percent, compared with 2.1 percent for long-term Treasury bonds, according to the data.
Credit Suisse cut its forecast for where the S&P 500 will end the year to 920 from 1,050, saying stocks won’t recover until the U.S. and Japan convince investors they can revive global growth.
“Until we have clear signs of a workable bad bank/insurance scheme in the U.S. and a willingness by Japan to pursue aggressive fiscal easing, market participants will be reluctant to price the market off ‘trend’ earnings,” strategist Andrew Garthwaite wrote in a report today.
Governments across the world are stepping up measures to stem the worst global recession since World War II. Bank of America and Citigroup have received a combined $90 billion in U.S. aid in four months.
‘Firmly Behind’ Banks
Federal officials said today that they will make sure banks have enough capital to boost lending and spur economic growth. The joint statement from regulators, including the Federal Reserve and Treasury, promised they will stand “firmly behind the banking system during this period of financial strain.”
Bank of America snapped a six-day losing streak, gaining 12 cents to $3.91. Citigroup rallied 19 cents to $2.14. Among 24 S&P 500 industries, only banks advanced, adding 2.1 percent.
Citigroup is in talks with federal officials that may result in the government holding as much as 40 percent of its common stock, the Wall Street Journal reported. Executives at the bank would prefer the stake to be closer to 25 percent, the newspaper reported. Citigroup spokesman Jon Diat declined to comment.
The financial crisis will be harder to end than the Great Depression and may force banks to be nationalized, “Black Swan” author Nassim Nicholas Taleb said in a Bloomberg Television interview. Rare and unforeseen events are known as “black swans” after Taleb’s 2007 book, “The Black Swan: The Impact of the Highly Improbable.” The financial crisis isn’t one, he said.
“The black swan for me would be for us to emerge out of this unscathed and return to normalcy,” Taleb said. Compared with the Great Depression, this crisis is “very different, and it requires much more drastic action.”
Hewlett-Packard Co. and Intel Corp. slid at least 5.4 percent as Morgan Stanley said technology shares are the most vulnerable among economically sensitive industries. U.S. Steel Corp. led a retreat in steelmakers after UBS AG said the group has raised output too quickly. Bank of America Corp. rose 3.2 percent and Citigroup Inc. climbed 9.7 percent as concern eased that the U.S. government will seize control of the lenders.
The S&P 500 declined 3.5 percent to 743.33, its lowest close since April 1997. The six-day losing streak in the U.S. stock benchmark ranks as its longest since October. The Dow Jones Industrial Average tumbled 250.89 points, or 3.4 percent, to 7,114.78, its lowest since May 1997. The Russell 2000 Index lost 4 percent.
“Many investors simply can’t contemplate any more stock market risk in their portfolios,” said Fritz Meyer, the Denver- based senior market strategist for Invesco Aim, which oversees $357 billion. “Sentiment in the market is very weak and negative.”
Bank of America and Citigroup each fell more than 68 percent this year, leading the S&P 500 to an 18 percent drop in the worst start to a year. President Barack Obama and Treasury Secretary Timothy Geithner have failed to assuage investors with a $787 billion economic stimulus plan comprised of tax breaks and government spending.
Stress Tests
Financial shares led the market higher at the open, rising as much as 4.6 percent collectively, after U.S. regulators said they will begin examining which banks have enough capital to survive a deeper recession. Banks that need more funds after so- called stress tests and cannot raise the money from private investors will be able to tap taxpayer funds.
Losses of at least 11 percent in shares of Nucor Corp., U.S. Steel and AK Steel Holding Corp. pushed a group of raw-materials producers in the S&P 500 to a 6.2 percent tumble, the most among 10 industries.
Steelmakers need to limit supply to support a “sustained recovery,” said UBS analyst Andrew Snowdowne in a research report. He cut his rating on ArcelorMittal, the world’s biggest steelmaker, to “neutral” from “buy,” while SSAB Svenskt Staal AB, the largest supplier of high-tensile steel, was reduced to “sell” from “neutral.”
Morgan Stanley strategist Jason Todd advised clients to remain “underweight” technology and raw-materials companies as the global economy continues to deteriorate.
‘Sell the Rally’
“Sell the recent rally,” Todd wrote. “A turnaround in profitability will not come quickly.”
The S&P 500 Information Technology Index, which has lost 8.7 percent this year for the second-best performance among 10 industries, fell 4.4 percent today.
Hewlett-Packard, the world’s largest personal-computer maker, declined 6.3 percent to $29.28 for a fifth straight day of losses. Intel, the biggest chipmaker, sank 5.5 percent to $12.08.
“We’re still being governed by how deep the recession will be,” said Mike Ryan, head of wealth management research for the Americas at UBS Financial Services Inc. “There just don’t seem to be any clear signs that some of the problems have run their course.”
The MSCI Asia Pacific Index increased 0.3 percent today and Europe’s Dow Jones Stoxx 600 Index slipped 0.9 percent. Yields on benchmark 10-year U.S. Treasury notes were little changed at 2.78 percent, according to BGCantor Market Data, as the government prepared to sell a record amount of notes this week.
Health-Care Retreat
Humana Inc. fell the most since March after the U.S. government proposed fee increases of less than 1 percent to companies providing subsidized health coverage for the elderly.
S&P 500 health-care stocks collectively lost 2.5 percent. Humana tumbled 24 percent to $30.83 for the biggest drop in the S&P 500. The second-largest provider of U.S.-funded health insurance said the new rates, scheduled for 2010, would have a “significant adverse impact.”
General Electric Co. retreated 5.7 percent to $8.85, the lowest price since March 1995. The company’s dividend is “highly vulnerable to a material cut” as its finance arm GE Capital may require additional equity, Deutsche Bank analyst Nigel Coe wrote in a Feb. 22 note.
Disappearing Dividends
The fastest reduction in U.S. dividends since 1955 is depriving investors of the only thing that gave stocks an advantage over government bonds in the last century.
U.S. equities returned 6 percent a year on average since 1900, inflation-adjusted data compiled by the London Business School and Credit Suisse Group AG show. Take away dividends and the annual gain drops to 1.7 percent, compared with 2.1 percent for long-term Treasury bonds, according to the data.
Credit Suisse cut its forecast for where the S&P 500 will end the year to 920 from 1,050, saying stocks won’t recover until the U.S. and Japan convince investors they can revive global growth.
“Until we have clear signs of a workable bad bank/insurance scheme in the U.S. and a willingness by Japan to pursue aggressive fiscal easing, market participants will be reluctant to price the market off ‘trend’ earnings,” strategist Andrew Garthwaite wrote in a report today.
Governments across the world are stepping up measures to stem the worst global recession since World War II. Bank of America and Citigroup have received a combined $90 billion in U.S. aid in four months.
‘Firmly Behind’ Banks
Federal officials said today that they will make sure banks have enough capital to boost lending and spur economic growth. The joint statement from regulators, including the Federal Reserve and Treasury, promised they will stand “firmly behind the banking system during this period of financial strain.”
Bank of America snapped a six-day losing streak, gaining 12 cents to $3.91. Citigroup rallied 19 cents to $2.14. Among 24 S&P 500 industries, only banks advanced, adding 2.1 percent.
Citigroup is in talks with federal officials that may result in the government holding as much as 40 percent of its common stock, the Wall Street Journal reported. Executives at the bank would prefer the stake to be closer to 25 percent, the newspaper reported. Citigroup spokesman Jon Diat declined to comment.
The financial crisis will be harder to end than the Great Depression and may force banks to be nationalized, “Black Swan” author Nassim Nicholas Taleb said in a Bloomberg Television interview. Rare and unforeseen events are known as “black swans” after Taleb’s 2007 book, “The Black Swan: The Impact of the Highly Improbable.” The financial crisis isn’t one, he said.
“The black swan for me would be for us to emerge out of this unscathed and return to normalcy,” Taleb said. Compared with the Great Depression, this crisis is “very different, and it requires much more drastic action.”
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