By Whitney Kisling
Aug. 14 (Bloomberg) -- U.S. stocks slid, erasing this week’s gain in the Standard & Poor’s 500 Index, as lower-than- estimated consumer confidence added to concern a five-month rally has outpaced prospects for the economy.
Boeing Co., the world’s second-largest commercial airplane manufacturer, led declines in the Dow Jones Industrial Average after saying it found flaws in 23 of its 787 Dreamliners. Alcoa Inc., 3M Co. and Travelers Cos. also slumped as all 10 industries in the S&P 500 posted declines. J.C. Penney Co. retreated after its forecast trailed estimates.
“A lot of people think the market has come up more than enough and it needs to rest,” said Charles Knott, chief investment officer at Knott Capital Management in Exton, Pennsylvania, who oversees about $550 million. “We’ve got a pretty sobering outlook and are concerned about the economy on a long-term basis. We think there’s neither the willpower nor the means to fully finance that type of V-shape recovery.”
The S&P 500 tumbled 1.5 percent to 997.81 at 1:02 p.m. in New York, heading for its first weekly drop in five and its biggest daily decline since July 7. The Dow industrials lost 132.03 points, or 1.4 percent, to 9,266.16.
U.S. stocks are “dramatically overpriced” because the fallout from the financial crisis will continue to hurt consumer spending, said David Tice, Federated Investors Inc.’s chief portfolio strategist for bear markets. Tice, who predicts that the S&P 500 will eventually slump to 400, said he would add to short positions if the market goes much higher.
‘Need to Be Realistic’
“I’d love for prosperity to return, unfortunately I think you need to be realistic and it takes time to work off these excesses” from a bubble in credit markets, Tice said in an interview with Bloomberg Television.
Equities declined even after industrial production in the U.S. rose for the first time in nine months after mid-year retooling at automakers and as a federal “cash-for-clunkers” program fueled demand for cars. The 0.5 percent increase in output at manufacturers, mines and utilities was more than economists forecast, Federal Reserve figures showed.
A 50 percent rebound from a 12-year low on March 9 left the S&P 500 trading at 18.6 times the profits of its companies on Aug. 7, the highest valuation since 2004, according to weekly Bloomberg data. Stocks gained yesterday after investorJohn Paulson’s hedge fund bought stakes in banks, helping offset an unexpected slump in retail sales.
Earnings Season
Per-share earnings topped analysts’ estimates by 10 percent on average for the companies in the S&P 500 that have released results since June 17, according to data compiled by Bloomberg. Profits slumped about 30 percent in the period, a record eighth straight quarter of falling earnings.
Instead of a so-called New Normal of subdued growth, the U.S. may be heading for a robust recovery. The worst recession since the 1930s has created a reservoir of demand that will buoy the economy, say a growing number of economists led byJames Glassman at JPMorgan Chase & Co., former Fed Governor Laurence Meyer and Stephen Stanley at RBS Securities Inc.
Boeing said it stopped work more than a month ago on two sections for the 787 Dreamliner after flaws were found. The 787 was almost two years behind its initial May 2008 first-delivery target before the latest delay. Shares of the second-biggest defense contractor fell 4.4 percent to $44.58, the biggest decline in more than a month.
J.C. Penney slid the most since February, losing 6.7 percent to $31.12, after the third-largest U.S. department-store chain gave a third-quarter forecast trailing analysts’ estimates. Sales continue to decline, the company said.
Financials Slump
Financial shares, which have more than doubled since the S&P 500 hit a 12-year low of 676.53 on March 9, declined 1.8 percent as a group today. Bank of America Corp., along with the other largest U.S. lenders, may be poised to fall on concern that earnings prospects don’t justify the surge, based on price- earnings ratios. Bank of America slid 1.1 percent to $16.82. Fifth Third Bancorp decreased 3.1 percent to $10.50.
Alcoa, the largest U.S. aluminum producer, dropped 3.9 percent to $13.17. 3M, the maker of 55,000 products, slid 2.5 percent, while Travelers, the New York-based insurer, slipped 1.3 percent to $46.87 after two days of gains. TheReuters/Jefferies CRB Index of 19 commodities declined 1.3 percent, bringing its weekly loss to about 1 percent.
Crude oil fell as much as 4.6 percent to $67.29 a barrel. National Oilwell Varco Inc., the world’s largest maker of oilfield equipment, dropped 5.5 percent to $36.19, the biggest slide in more than a month. All 40 members of the S&P 500 energy group declined.
Equity Residential and Barnes & Noble Inc. dropped after analysts downgraded the shares. UBS AG cut Equity Residential, the largest publicly traded owner of apartment complexes, to “sell” from “neutral,” sending the shares down 4.3 percent to $26.65. Credit Suisse Group AG lowered Barnes & Noble to “underperform,” citing the company’s decision to buy back a unit as an increased risk. The shares fell 11 percent to $20.40, the most since January 2008.
To contact the reporter on this story: Whitney Kisling in New York atwkisling@bloomberg.net.
Last Updated: August 14, 2009 13:04 EDT
