U.S. stocks fell, a day after the Standard & Poor’s 500 Index failed to hold at an almost four- year high, as sales of previously owned houses missed estimates and data from Europe and China spurred economic concern.
Stocks pared losses after Greece’s finance minister said yesterday’s approval of a bailout means the nation is tied to the euro area. Toll Brothers Inc. (TOL) and KB Home dropped more than 2.7 percent to pace a slump in homebuilders. Dell Inc. (DELL) sank 6.1 percent as its sales forecast missed estimates. Financial shares had the biggest decline in the S&P 500 among 10 groups, falling 1.1 percent. Gannett Co. (GCI), the owner of 82 newspapers including USA Today, surged 4.4 percent as it will boost its dividend.
The S&P 500 retreated 0.1 percent to 1,360.89 at 2:19 p.m. New Yorktime, paring an earlier loss of as much as 0.5 percent. The Dow Jones Industrial Average declined 1.25 points, or less than 0.1 percent, to 12,964.44 after the 30-stock gauge rose above 13,000 (INDU)yesterday for the first time since 2008.
“You can ride this, but you’ve got to be very careful and sit near the exit,” David Darst, the New York-based chief investment strategist at Morgan Stanley Smith Barney, said in a telephone interview. His firm has $1.6 trillion in client assets. “Most of the economies are slowing. Earnings will be slowing. The market is overbought on a short-term basis.”
Stocks fell as purchases of previously owned homes climbed to a 4.57 million annual rate, less than forecast, data from National Association of Realtors showed. European services and manufacturing output unexpectedly shrank in February. China’s manufacturing may shrink for a fourth month, according to data from HSBC Holdings Plc and Markit. Fitch Ratings lowered Greece’s credit rating and said a default is highly likely.
Trimming Losses
Equities pared losses as Greek Finance Minister Evangelos Venizelos said yesterday’s decision by euro area finance ministers to approve a second rescue package for the country bound Greece to the euro and the euro area. Greece sealed a 130 billion-euro ($170 billion) bailout package by agreeing yesterday to austerity measures while reducing its bond principal by 53.5 percent as investors swap into new securities with longer maturities and lower coupons.
The S&P 500 yesterday failed to hold above its April 2011 peak of 1,363.61 (SPX), which was the highest level since June 2008. The index has rallied 3.6 percent in February and is poised for a third straight month of gains, the longest streak in a year. The monthly gain has extended this year’s advance to 8.2 percent amid higher-than-estimated U.S. economic data and profits and expectations Europe will tame its crisis.
‘Trifecta’
“We have a trifecta of worrisome news,” Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $47 billion, said in a telephone interview. “The softness in economic data suggests that global momentum remains muted. We have slower earnings growth and the market is facing some technical resistance.”
A gauge of homebuilders in S&P indexes dropped 2 percent. Toll Brothers declined 2.7 percent to $23.06. The largest U.S. luxury-home builder reported an unexpected first-quarter loss. KB Home (KBH) decreased 3.7 percent to $11.32.
Dell tumbled 6.1 percent to $17.10. Sluggish sales have raised concerns about Dell’s comeback plan, which has relied on streamlining operations to boost earnings. After an almost 25 percent gain in Dell’s shares this year, some investors may have been overly optimistic about the company’s ability to turn around its operations, said Brian Marshall, an analyst at ISI Group Inc. in San Francisco.
Financial shares dropped, following losses in European lenders. The KBW Bank Index (BKX)declined 1.8 percent. Citigroup Inc. (C) dropped 2.7 percent to $32.46. Regions Financial Corp. (RF) erased 2.9 percent to $5.81.
Wal-Mart
Wal-Mart Stores Inc. (WMT) fell the most in the Dow, slumping 2.1 percent to $58.79. The shares retreated 3.9 percent yesterday after the world’s largest retailer reported fourth-quarter profit that trailed analysts’ estimates.
Gannett surged 4.4 percent to $15.65. The company said it will raise its quarterly dividend to 20 cents a share from 8 cents. The publisher’s goal is to return more than $1 billion to shareholders by 2015, the company said.
Intuit Inc. (INTU) gained 6.6 percent to $61.34. The seller of TurboTax software for filing with the Internal Revenue Service boosted its full-year earnings forecast.
Energy shares added 0.5 percent for the biggest increase among 10 groups in the S&P 500.Nabors Industries Ltd. (NBR) climbed 8.6 percent, the most in the S&P 500, to $22.10. The world’s largest land-drilling contractor reported fourth-quarter sales and earnings that exceeded analysts’ estimates.
Transportation Shares
A two-week retreat in the Dow Jones Transportation Average (TRAN) may signal a warning for the rally that has added $1.35 trillion to American equity values this year, according to analysts who use charts to predict markets.
The gauge has fallen 3.8 percent since Feb. 3, a period in which the Dow Jones Industrial Average climbed 0.8 percent and reached the highest level since May 2008. The transportation average is viewed by some analysts as a leading indicator because truckers, airlines and couriers may be the first to experience the effects of an economic slowdown.
“This market does seem to be overdue for a pullback,” Chuck Carlson, chief executive officer at Horizon Investment Services LLC in Hammond, Indiana, said in a phone interview. Horizon oversees $150 million and uses the relationship between the industrial and transportation gauges to determine how much cash to hold. A divergence “doesn’t always necessarily signal a change in the major trend, but it can foreshadow a bit of a correction,” he said.
Hedging Costs
Futures traders are pricing in the biggest increase in U.S. equity hedging costs since 2010 after the S&P 500 rose within 2 points of erasing last year’s slump.
April futures on the Chicago Board Options Exchange Volatility Index closed at 25.15 yesterday, or 6.96 points higher than the level of the gauge, according to data compiled by Bloomberg. The gap widened to 7.02 points on Feb. 17. The last time two-month futures were that high in relation to the index known as the VIX was July 2010.
The S&P 500 has surged 24 percent since Oct. 3 on optimism Europe will resolve the debt crisis. Now, traders are increasing hedges to protect against losses, according to Dominic Salvino, a specialist on the CBOE floor for Group One Trading.
“The consensus bet is that we’re going to have turmoil or some levels of higher volatility in the future,” Liam Dalton, who oversees about $1.8 billion as chief executive officer of Axiom Capital Management Inc. in New York, said in a telephone interview yesterday. “If you were to talk about a breakdown in cooperation in Europe, it would affect everything. If the sentiment goes negative, then you can get these periods of increased volatility.”
