BLBG: U.S. Stocks Decline as Industrials Pace Retreat From Records
(Bloomberg) -- U.S. stocks fell for a second day, after benchmark indexes reached records Monday, as industrial and phone companies led a retreat before the government’s jobs report Friday.
Alcoa Inc. slid to its lowest level since December as industrial companies paced declines among nine of 10 groups in the Standard & Poor’s 500 Index. The health-care group was the benchmark’s only advancer as Tenet Healthcare Corp. and HCA Holdings Inc. climbed more than 5.8 percent. The Nasdaq Biotechnology Index rose to an intraday record.
The S&P 500 fell 0.4 percent to 2,098.53 at 4 p.m. in New York. It dropped 0.9 percent in the past two days for the biggest slide in five weeks. The Dow Jones Industrial Average lost 106.47 points, or 0.6 percent, to 18,096.90. The Nasdaq Composite Index fell 0.3 percent. About 6.4 billion shares traded hands, 8 percent below the three-month average.
“The market is vulnerable to some sort of short-term decline, primarily because valuations are stretched,” Dan Morris, a global investment strategist at TIAA-CREF Asset Management in New York, said by phone. His firm oversees about $611 billion. “It’s hard to find inexpensive parts of the market.”
The S&P 500 trades at 18.9 times earnings, an almost a five-year high and compared with an average of 16.9 since 1936, data compiled by Bloomberg and S&P Dow Jones Indices show.
While the S&P 500 rose to fresh records four times in February, its 2.4 percent gain this year trails all but two of the 24 developed markets. The Dow in February posted its best month in two years.
Economic Data
Economic reports this week could give clues on when the Federal Reserve may increase its benchmark interest rate. Companies in the U.S. added 212,000 workers to payrolls in February, figures from Roseland, New Jersey-based ADP Research Institute showed. The median projection of 46 economists surveyed by Bloomberg called for an advance of 219,000. The January reading was revised to 250,000 from a previously reported advance of 213,000.
The data comes before the Labor Department’s report Friday in which economists predict nonfarm payrolls rose 235,000 last month and the unemployment rate fell to 5.6 percent from 5.7 percent in January.
Service industries unexpectedly expanded at a faster pace in February, encouraging companies that make up the biggest part of the U.S. economy to take on more workers.
The Institute for Supply Management’s non-manufacturing index increased to 56.9 from the prior month’s 56.7, the Tempe, Arizona-based group said Wednesday. A gauge above 50 shows expansion and the median estimate in a Bloomberg survey of economists called for 56.5.
ECB Anticipation
The Federal Reserve’s Beige Book showed most of the economy continued to expand from January through mid-February, with consumer spending rising and manufacturing gaining.
Investors are also awaiting details of the European Central Bank’s debt-purchase program on Thursday. ECB President Mario Draghi on Jan. 22 announced a 1.1 trillion-euro ($1.2 trillion) quantitative-easing plan to counter slowing growth and the threat of deflation, spurring a rally across equity markets worldwide.
Costco Wholesale Corp. and Staples Inc. are among S&P 500 members reporting results later this week. With almost all companies having released earnings by now, 74 percent beat profit projections and 56 percent topped sales estimates for the final three months of 2014. Analysts predict profit at S&P 500 companies will drop 4.9 percent in the current quarter.
Industrials Drop
Industrial stocks in the S&P 500 fell 0.8 percent. Alcoa Inc. declined 3.9 percent and Century Aluminum Co. lost 17 percent, its worst drop since 2011, after Bank of America analyst Timna Tanners cut their ratings to neutral from buy, citing in part the impact from a stronger U.S. dollar.
Fastenal Co. slid 3.1 percent to the lowest since 2012 after a February sales report which was below expectations, Credit Suisse said. Rival supplier W.W. Grainger Inc. fell 2.2 percent.
Abercrombie & Fitch Co. tumbled 16 percent to a six-year low after posting a worse fourth-quarter sales decline than analysts estimated after struggling to lure customers during the holidays.
Bob Evans Farms Inc. plunged 22 percent, the biggest one-day drop ever, after the board scrapped the idea of selling or spinning off its sausage and refrigerated-food business.
Utility companies in the S&P 500 fell 0.6 percent for the fifth decline in six sessions. AES Corp. and Integrys Energy Group Inc. slid 2 percent to lead the declines.
Health-Care Climbs
Health-care shares were the only group to advance, as Tenet Healthcare Corp. and HCA Holdings Inc. rallied amid questioning during a Supreme Court challenge to Obamacare’s insurance subsidies.
Justice Anthony Kennedy, often a swing vote in important cases, said there is a “powerful” point to the Obama administration’s argument that the law would fall apart if the subsidies were ruled unlawful.
American Eagle Outfitters added 7.7 percent to its highest level in more than a year after quarterly results and first-quarter profit outlook exceeded analysts’ forecasts.
The Chicago Board Options Exchange Volatility Index advanced 2.7 percent to 14.23. The gauge, known as the VIX, lost 36 percent in February for its biggest monthly decline on record.
To contact the reporter on this story: Oliver Renick in New York at orenick2@bloomberg.net
To contact the editors responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net Jeremy Herron
