U.S.
stocks fell, sending the Standard & Poor’s 500 Index below its lowest close in 12 years, 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 4.6 percent as Morgan Stanley said technology stocks are the most vulnerable among economically sensitive industries. Nucor Corp. helped lead a decline in steelmakers after UBS AG said the group has increased output too quickly. Bank of America Corp. rose 9.5 percent and Citigroup Inc. climbed 19 percent as concern eased that the U.S. government will seize control of the lenders.
The S&P 500 lost 2.9 percent to 747.64 at 3:34 p.m. in New York, below its lowest close since April 1997. The six-day losing streak in the U.S. stock benchmark ranks as the longest since October. The Dow Jones Industrial Average decreased 207.48 points, or 2.8 percent, to 7,158.19, below its lowest close since October 1997. The Russell 2000 Index lost 3.1 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 with losses exceeding 65 percent this year, have dragged the S&P 500 to a 17 percent decline in 2009, the worst start on record. President Barack Obama and Treasury Secretary Timothy Geithner failed to assuage investor concerns with an $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 in shares of Nucor Corp., U.S. Steel Corp. and AK Steel Holding Corp. pushed a group of raw-materials producers in the S&P 500 to a 5 percent loss, 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. “Tech is a momentum sector where generally valuations alone are not enough to drive outperformance if earnings momentum is negative and valuations are just ‘fair.’”
The S&P 500 Information Technology Index, which has lost 8.1 percent this year for the second-best performance among 10 industries, fell 3.8 percent today.
Hewlett-Packard, the world’s largest personal-computer maker, declined 5.3 percent to $29.60 for a fifth straight day of losses. Intel, the biggest chipmaker, fell 5.3 percent to $12.10.
“We’re still being governed by how deep the recession 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 2.80 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 April 1999 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 2.3 percent. Humana tumbled 25 percent to $30.54 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.”
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.
Disappearing Dividends
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.
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.
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 33 cents to $4.12. Citigroup rallied 34 cents to $2.29.
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 said. 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 government measures will prevent the world from going under,” said Rudolf Buxtorf, who manages the equivalent of $114 million at RBS Coutts Bank in Zurich. “We won’t see a bankruptcy or an even worse catastrophe.”
To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.
