June 30 (Bloomberg) -- U.S. stocks fell, limiting the biggest quarterly
advance for the Standard & Poor’s 500 Index since 1998, after consumer
confidence unexpectedly slid and delinquencies on the least-risky mortgages
more than doubled.
Caterpillar Inc., Expedia Inc. and Starbucks Corp. lost at least 4.8 percent
after the Conference Board’s sentiment index slumped to 49.3, six points below
the average economist forecast. Citigroup Inc. and JPMorgan Chase & Co. dropped
as government data showed prime mortgages 60 days or more past due climbed to
2.9 percent in the first quarter from 1.1 percent at the same time last year.
The S&P 500 lost 0.9 percent to 919.32 at 4:05 p.m. in New York. The Dow Jones
Industrial Average slid 82.38 points, or 1 percent, to 8,447. About two stocks
dropped for each that rose on the New York Stock Exchange. Shares in Europe
retreated, while Asian shares rallied.
“You had a great market run-up this quarter and people are starting to wonder
what’s going to happen next,” said Jonathan Vyorst, senior vice president at
New York-based Paradigm Capital Management Inc., which oversees about $1.5
billion. “The fundamentals of the economy aren’t really that strong.”
Even though the S&P 500 gained 15 percent in the second quarter, the rally
stalled in June amid concern share prices already reflect an economic recovery,
leaving the index up less than 0.1 percent for the month. Investors are paying
14.6 times trailing 12-month profit for companies in the S&P 500, near the
most-expensive level since October.
The advance from April through June broke a streak of six consecutive
quarterly declines for the S&P 500, the longest since 1970. The Dow advanced 11
percent in the quarter, its best gain since 2003.
‘Wall of Worry’
The Chicago Board Options Exchange Volatility Index, or VIX, rose for the
first time in six days, adding 3.9 percent to 26.35. The VIX dropped yesterday
below its level when Lehman Brothers Holdings Inc. filed for bankruptcy in
September, yet was still 26 percent above its average.
Above-average volatility shows traders are still paying up for insurance to
protect against losses in the S&P 500. Bigger equity gains depend on investors
overcoming the remaining skepticism, sometimes called the “wall of worry,”
spurred by last year’s 38 percent slump in the equity index, the steepest slide
since 1937.
Caterpillar, the biggest maker of earth-moving equipment, dropped 4.9 percent
to $33.04. Expedia, the Internet travel agency, tumbled 5.1 percent to $15.11.
Starbucks, the largest coffee-house chain, lost 5.1 percent to $13.89. Consumer
confidence weakened as U.S. firms were slow to start hiring again and the
wealth destruction caused by the housing slump forced Americans to rebuild
savings.
Banks Slump
Citigroup fell 1.7 percent to $2.97. JPMorgan lost 1.4 percent to $34.11.
Overall, mortgages 60 days or more past due rose 88 percent from last year,
according to data from the Office of the Comptroller of the Currency and the
Office of Thrift Supervision. First-time foreclosure filings on the loans rose
22 percent from the fourth quarter, the report said.
Southern Co. sank 2.2 percent, the most in two months, to $31.16. The largest
U.S. power producer was cut to “hold” from “buy” by Citigroup Inc. analysts.
Financial shares in the S&P 500 fell 1.1 percent collectively and were the
biggest drag on the index today. The group of 80 banks, insurers and investment
firms rallied 35 percent in the quarter for the biggest gain among 10
industries, all of which advanced.
Financial shares have surged 97 percent from a 17-year low on March 6 amid
growing speculation that the worst of the banking crisis is over after almost
$1.5 trillion in global credit losses and writedowns following the collapse of
the subprime mortgage market.
‘More Selective’
Technology shares posted the second-steepest advance among 10 groups in the
quarter, jumping 19 percent, followed by industrial companies with an 18
percent gain and consumer- discretionary stocks with an almost 18 percent
advance.
“We’ve had a rally that lifted most boats, but I think the advance from here
is going to be more selective,” said Alan Gayle, the Richmond, Virginia-based
director of asset allocation at Ridgeworth Investments, which manages $60
billion. “As we get closer to the earnings season, investors are going to be
looking carefully for companies with signs of sustainable growth.”
AIG Tumbles
American International Group Inc. posted the S&P 500’s steepest loss, plunging
13 percent to $1.16. The insurer bailed out by the U.S. said valuation declines
on credit-default swaps sold to European banks could have a “material adverse
effect” on the company’s results. The risk of losses on the derivatives may
last “longer than anticipated,” AIG said yesterday in a regulatory filing.
Energy stocks lost 0.8 percent as a group as oil dropped from an eight-month
high to below $70 a barrel amid signs the global recession may be deepening.
Schlumberger Ltd., Tesoro Corp. and Hess Corp. retreated more than 1.1 percent.
The U.K. economy shrank the most since 1958, contracting 2.4 percent from the
final three months of 2008, the Office for National Statistics said. Gross
domestic product in Canada contracted for a ninth month, declining 0.1 percent
in April, because of falling output in the retail, manufacturing and energy
industries, according to data from Statistics Canada.
Benchmark indexes rose at the open following better-than- estimated results at
Apollo Group Inc. and H&R Block Inc. and reports showing home prices fell less
than forecast and two purchasing managers’ gauges topped economists’ estimates.
“My guess would be that home prices are going to level off -- they’re not
going to keep falling,” Robert Shiller, an economist at Yale University and
co-founder of the home price index that bears his name, told Bloomberg
Television. Still, it’s “hard to predict” a speculative market, and “I am not
optimistic that we’re going to see any sharp rebound.”
To contact the reporter on this story: Lynn Thomasson in New York at
lthomas...@bloomberg.net .
===
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