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Published: Monday, 9/24/2012

S&P 500 extends slump on European crisis discord

BLOOMBERG NEWS

NEW YORK — The Standard & Poor's 500 Index fell for the third consecutive trading session today, its longest decline in seven weeks, as European leaders clashed on ways to stem the debt crisis and data from China and Germany signaled the slowdown is deepening.

Apple retreated 1.3 percent after reporting debut weekend sales for the iPhone 5 that fell short of some analysts’ projections on supply constraints. Facebook, the world's largest social-networking service, decreased 9.1 percent amid concern the company's stock is overpriced. U.S. Steel, Peabody Energy and Micron Technology declined at least 1.6 percent after analysts downgraded the shares.

The S&P 500 dropped 0.2 percent to 1,456.89. The Dow Jones Industrial Average lost 20.55 points, or 0.2 percent, to 13,558.92 for its second straight decline. Volume for exchange-listed stocks in the U.S. was 5.5 billion shares today, or 7.5 percent below the three-month average.

“There's no magic bullet to this European crisis,” said Hayes Miller, who helps oversee about $48 billion as the Boston-based head of asset allocation in North America at Baring Asset Management. “The politicians have been trying to put on a face of unity. Yet there are no easy solutions. You're going to have an economic growth rate that's going to be quite poor over the next year. It's going to be a challenging environment.”

Global stocks slumped after German Chancellor Angela Merkel and French President Francois Hollande disagreed on a timetable for starting joint oversight of Europe's banking sector. German business confidence unexpectedly fell in September. China's manufacturers and retailers are less optimistic about sales than they were three months ago and are cutting jobs, according to a survey by New York-based researcher CBB International.

The S&P 500 last week had the first drop since August after European Union finance ministers failed to calm concern about the region's debt crisis. The index was still up 16 percent this year amid better-than-estimated earnings, rising consumer confidence and home sales, and Federal Reserve stimulus. The S&P 500 briefly rose today amid gains in financial shares.

“I just think the market has an underlying bid between now and the start of the next quarter as the quarterly allocation process should strongly favor equities,” said Michael Shaoul, chairman of New York-based Marketfield Asset Management, which oversees $3 billion. “It will take something quite significant to derail the rally between now and then.”

Six out of 10 groups in the S&P 500 fell as technology and commodity shares had the biggest losses.

Apple fell 1.3 percent to $690.79. More than 5 million units of the iPhone 5 were sold in the first three days, surpassing a record set last year by the previous model, the iPhone 4S. Demand for the new handset exceeded the initial supply, Apple said. A successful debut for the iPhone, responsible for about two-thirds of profit, is crucial to fueling the growth that transformed Apple from a niche computer maker into the world's most valuable company.

“The number is lower than what people had expected,” said Brian White, an analyst at Topeka Capital Markets, in an interview. He had estimated debut weekend sales of 6 million to 6.5 million units. “This seems to be driven more by availability than demand.”

Facebook lost 9.1 percent to $20.79, after surging 27 percent since the end of August. Barron's said the company is overvalued and may drop to $15 a share or lower as it falls behind in capitalizing on the growing number of mobile-device users. Richard Greenfield, an analyst at BTIG Research, said the mobile strategy makes him concerned, according to the newspaper.

Measures of semiconductor and computer companies led the losses in the S&P 500 among 24 groups. Evercore Partners cut its estimates for the personal computer industry. Hewlett-Packard retreated 2.2 percent, the most in the Dow, to $17.21. Intel lost 1.4 percent to $22.80, the lowest price since November.

Two of the nation's largest steelmakers were downgraded by Citigroup, which cited declining steel prices and the companies’ fixed costs. U.S. Steel was lowered to a neutral rating, and AK Steel was rated a sell, Brian Yu and Jonathan Sullivan, analysts at Citigroup, wrote in a note issued today. Citigroup reduced its forecast for hot-rolled coil to $625 a ton in 2013 and $630 a ton in 2014.

U.S. Steel, based in Pittsburgh, fell 1.8 percent to $19.59. AK Steel, based in West Chester, Ohio, dropped 4.6 percent to $5.01.

Peabody Energy, the largest U.S. coal producer by volume, dropped 4.5 percent to $22.94. Bank of America downgraded the stock to underperform from buy, citing a more cautious outlook on the industry.

Micron Technology lost 1.7 percent to $6.26 after being cut to sector perform at Pacific Crest Securities. The company is due to announce its results on Thursday. Micron reported its fourth-straight quarterly loss in June as chip manufacturers struggled to match production capacity with fluctuations in demand for personal computers, mobile phones and tablets.

Questcor Pharmaceuticals tumbled 37 percent to $19.08 after disclosing the company's marketing practices are being investigated by the U.S. government.

Peregrine Pharmaceuticals plunged 78 percent, the most ever, to $1.16. The biotechnology company said the survival rates from its lung cancer study reported earlier this month were unreliable.

Google rose 2.1 percent to a record $749.38. The world's largest search engine is benefiting from rising demand for its advertising products, including search, display and mobile. The company is expected to become the leader in the U.S. for display advertising this year, including banner ads, replacing Facebook, according to eMarketer.

MetLife advanced 1.6 percent to $35.42. The insurer seeking to exit banking to limit U.S. oversight amended a deal to sell about $7 billion in deposits to General Electric so that Federal Deposit Insurance Corp. approval is no longer required. The deal will now be subject to approval from the Office of the Comptroller of the Currency, the New York-based insurer said in a Sept. 21 regulatory filing.

Chief Executive Officer Steven Kandarian is seeking to reduce supervision from the Federal Reserve after the regulator twice blocked his company's plans to return capital to shareholders. MetLife may increase its dividend and repurchase shares after exiting bank status, according to Barclays.

TiVo rallied 4 percent to $9.94. The pioneer of digital-video-recording technology gained after Verizon agreed to pay it at least $250.4 million under a patent-litigation settlement.

Pandora Media climbed 3.7 percent to $10.89. The biggest U.S. online radio service rose after Albert Fried & Co. estimated a bill introduced to Congress would cut the company's content costs by as much as half.

CIT Group jumped 5.9 percent to $41.25. The commercial lender led by John Thain gained after analysts wrote it could be a target for Wells Fargo, and Fox Business Network said the firm is seeking a buyer. Curt Ritter, a spokesman for New York-based CIT, said the company doesn't comment on market rumors or speculation. Mary Eshet, a spokeswoman for San Francisco-based Wells Fargo, declined to comment.

Joy Global added 1.3 percent to $60.17. The mining- equipment manufacturer looks “increasingly likely” to be a General Electric acquisition target, Larry De Maria, a New York- based analyst at William Blair, said in a note to clients today. GE is preparing to buy more mining-equipment and services companies as it creates a new unit using the blueprint for doubling oil and gas revenue in four years.

The unbroken streak of S&P 500 profit growth that spurred a three-year bull market would last another quarter if not for energy companies, whose profits are poised to slump the most since 2009.

Income at oil and gas producers will fall 24 percent in the three months ending in September, the largest decline in three years, according to more than 1,200 analyst estimates compiled by Bloomberg. Excluding the retreat, earnings in the benchmark gauge for U.S. stocks would climb 2.5 percent, the 12th straight increase, amid gains for banks and computer makers, data show.

Lower earnings from Apache to Occidental Petroleum reflect the dip in oil and gas prices in May and don't signal lasting weakness in U.S. profits after they doubled since 2009, according to BB&T Wealth Management's Walter “Bucky” Hellwig. Bears say investors should heed the decline because energy suppliers are the fourth-biggest industry in the S&P 500 and their income reflects economic momentum.

“Over the past three years, companies have done well in growing earnings in a very challenging revenue environment,” Hellwig, who helps manage $17 billion at BB&T in Birmingham, Ala., said in a Sept. 18 telephone interview. “For stocks as a whole, the earnings growth rate slowdown's already been discounted. Companies will continue to generate favorable earnings and favorable earnings growth.”



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