BLBG: U.S. Stocks Retreat Following Rally; Citigroup, Newmont Drop
U.S. stocks declined as Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Timothy Geithner called for stronger regulation of financial companies and lower oil and metal prices dragged down commodity producers.
Citigroup Inc. and Bank of America Corp. retreated after the shares jumped more than 19 percent yesterday as Geithner detailed the government’s plan to purge toxic assets from banks. Newmont Mining Corp. and Alcoa Inc. slid at least 2.7 percent. Walt Disney Co. slumped 2.9 percent following a downgrade by Goldman Sachs Group Inc. on concern the stock is too expensive.
The S&P 500 lost 1.3 percent to 811.99 at 10:53 a.m. in New York a day after its biggest rally in five months. The Dow Jones Industrial Average slid 82.68 points, or 1.1 percent, to 7,693.18 and the Russell 2000 Index decreased 2.3 percent. Five stocks fell for each that rose on the New York Stock Exchange. Longer-term Treasuries fell for a fourth day as the U.S. prepared the first of three auctions for a record $98 billion.
“When you’re buying equities, you’re buying a stream of earnings and current earnings are in freefall,” said Douglas Cliggott, the Greenwich, Connecticut-based manager of the $81 million Dover Long/Short Sector Fund, which beat 97 percent of its peers last year. “We haven’t hit bottom yet.”
The S&P 500 jumped 7.1 percent yesterday to extend its rebound from a 12-year low on March 9 to 22 percent as investors speculated the Obama administration’s plan to finance purchases of toxic assets will spur growth. Bernanke and Geithner, testifying to Congress today, called for new powers to take over and wind down failing financial firms after the government’s troubled rescue of American International Group Inc.
Earnings Concern
Investors should sell bank stocks because the Treasury’s plan won’t stop profits from dropping, said Richard Bernstein, Bank of America’s chief U.S. quantitative strategist who is leaving the bank in mid-April to start his own money management firm. Analysts project profit at financial companies in the S&P 500 will decline 33 percent this quarter and 34 percent in the next, according to estimates compiled by Bloomberg.
An index of S&P 500 financial stocks collectively dropped 1.2 percent today after surging 18 percent yesterday. The measure is still down 24 percent on a year-to-date basis. Citigroup, which rallied 19 percent yesterday, lost 3.8 percent to $3.01. Wells Fargo & Co. declined 2 percent to $16.98.
Yesterday’s gain “was very exaggerated,” said Virginie Robert, a managing director at Raymond James Asset Management International in Paris, which oversees about $35 billion worldwide. “It’s the irrational side of the market. I want to see banks’ balance sheets cleaned up.”
‘Systemic Risks’
Bank of America slipped 3.6 percent to $7.52 after surging 26 percent yesterday. A company spokeswoman said David Rosenberg, the firm’s chief North American economist, is also leaving. He will join Gluskin Sheff & Associates in Toronto, according to a person familiar with the decisions.
Bernanke and Geithner called for stronger regulation to constrain the risks taken by firms that could endanger the financial system. The remarks foreshadow some of the likely changes to U.S. regulations in the aftermath of the worst crisis since the 1930s.
“As we have seen with AIG, distress at large, interconnected, non-depository financial institutions can pose systemic risks just as distress at banks can,” Geithner said in prepared testimony to a House Financial Services Committee hearing in Washington.
The government has spent $182.5 billion in rescuing AIG from losses tied to the housing market collapse. The New York- based insurer spurred populist outrage after paying $165 million in bonuses to employees of the division that triggered the bailout with losses on credit-default swaps.
Commodities Slump
Newmont, the largest U.S. gold producer, dropped 3.9 percent to $42.91. Alcoa slid 2.8 percent to $7.19.
The Reuters/Jefferies CRB Index of 19 raw materials lost 1 percent. Contract iron ore prices will drop for two years, undermined by a “whopping oversupply” of the steelmaking raw material, Citigroup Inc. said. Weak demand will likely force stainless-steel producers to cut output by at least 10 percent this year, according to Brussels-based Bureau of International Recycling said.
Exxon Mobil Corp. fell 1.5 percent to $69.49. Schlumberger Ltd., the world’s largest oilfield-services provider, lost 1.7 percent to $45.96.
Crude oil on the New York Mercantile Exchange slumped from the highest level in almost four months, losing 2.1 percent to $52.66 a barrel, amid speculation that U.S. stockpiles increased because of lower demand.
The Organization of Petroleum Exporting Countries can do little to raise oil prices, former Saudi Arabian Oil Minister Sheikh Ahmad Zaki Yamani said today in London.
Disney Downgrade
Walt Disney dropped 2.9 percent to $18.37 after Goldman Sachs analysts cut their recommendation to “neutral” from “buy.”
Blockbuster Inc., the largest video-rental chain, delayed filing its financial results, saying it needs more time to complete negotiation with its lenders. The shares slid 5.5 percent to 69 cents.
The S&P 500 took seven weeks to fall 20 percent and give President Barack Obama a bear market. To reach a bull market gain of more than 20 percent, it needed 10 days.
Obama’s Market
Growing confidence in Geithner’s program to unfreeze credit markets boosted equities yesterday after his first proposal on Feb. 10 spurred a 4.9 percent drop in the S&P 500, the largest since Obama took office. Shares have rebounded after the S&P 500 slid 20 percent from Inauguration Day to March 9, the steepest decrease for a newly elected president in at least 80 years, according to data compiled by Bloomberg.
“Two weeks ago, the sentiment indicators were exceptionally weak and the market was very oversold,” said Ajay Kapur, chief global strategist at Mirae Asset Securities Co., in an interview with Bloomberg Television from Hong Kong. “That condition doesn’t hold today.” Kapur was formerly Citigroup Inc.’s chief global equities strategist.
Marc Faber, managing director of Marc Faber Ltd., said Geithner is doing the “right thing” from a short-term perspective by implementing his plan for the economy. He also said he thinks the rally in stocks “may have some more legs” and the S&P 500 could reach the level of 880. Faber spoke today in an interview with Bloomberg Television.
BlackRock Inc.’s global macro fund, the world’s second-best performer over two years among hedge funds that invest based on economic trends, is betting against the equities rally. Its manager David Hudson said the fund is buying bonds as a recovery from the worst credit crisis since the Great Depression falters.
