U.S. Stocks Decline on India’s First Rate Boost Since July 2008
By Rita Nazareth
March 19 (Bloomberg) -- U.S. stocks declined, ending an eight-day winning streak for the Dow Jones Industrial Average, as India’s unexpected interest rate boost spurred speculation withdrawals of economic stimulus will curtail global growth.
Exxon Mobil Corp. and Schlumberger Ltd. dragged energy shares to the biggest losses in the Standard & Poor’s 500 Index as oil fell below $80 a barrel. Palm Inc. fell 19 percent after forecasting sales that trailed analysts’ estimates and Canaccord Financial Inc. cut its share-price estimate to zero. Boeing Co. rose 1.3 percent after accelerating production plans for its 777 and 747 planes.
The S&P 500 fell 0.7 percent to 1,157.76 at 11:33 a.m. in New York, trimming its third straight weekly advance to 0.7 percent. The Dow dropped 59.10 points, or 0.6 percent, to 10,720.07. More than 11 stocks dropped for every 3 that rose on U.S. equity markets.
“Keep an eye on the punch bowl,” Larry Kantor, head of research at Barclays Plc, told Bloomberg Radio before the announcement in India. Governments that injected funds into their economies to jumpstart growth are “going to be withdrawing that stimulus,” he added. “That’s actually the big risk.”
Most stocks fell yesterday on concern the Federal Reserve will boost the discount rate, the amount charged on direct loans to banks. Economists said this may occur before the next meeting of the Federal Open Market Committee on April 28. Fed spokesman David Skidmore declined to comment.
16-Month High
India’s central bank unexpectedly raised rates for the first time since July 2008 after inflation accelerated to a 16- month high. The Reserve Bank of India increased the benchmark reverse repurchase rate to 3.5 percent from a record-low 3.25 percent and the repurchase rate to 5 percent from 4.75 percent, according to a statement in Mumbai. The surprise decision comes a month before the bank’s scheduled monetary policy meeting.
“Whenever you have any noise about central banks making that shift in policy, you’re going to get that market reaction,” said Keith Wirtz, who oversees $18 billion as chief investment officer at Fifth Third Asset Management Inc. in Cincinnati. “We’re going to start to see signals and actions from the Fed suggesting that they’re preparing for that policy shift, and the market will react. On top of that, we’ve had a huge move in the stock market. So it wouldn’t surprise me to see people protecting profits.”
$12 Trillion
The S&P 500 climbed to the highest level since September 2008 on March 17. This week’s rally brings the surge from a 12- year low last March to 72 percent after governments and central banks around the world maintained low interest rates and committed more than $12 trillion to stimulate the economy. Stock swings have narrowed, with the 10-day average change between intraday lows and highs for the S&P 500 falling to 0.7 percent from 1.8 percent on Feb. 8.
“I don’t expect big moves,” said Peter Jankovskis, who helps manage about $1.8 billion as co-chief investment officer at Oakbrook Investments in Lisle, Illinois. “Stocks are fairly valued after the rally we’ve had from the lows. People are waiting for more signals that the economic recovery is sustainable.”
The energy and raw-materials industries in the S&P 500 fell at least 0.4 percent as the dollar rose, reducing the appeal of commodities as an alternative investment. The Dollar Index, a measure of the U.S. currency’s performance against those of six major trading partners, advanced 0.8 percent.
Copper, Gold
Exxon dropped 0.9 percent to $66.77, while Schlumberger declined 1 percent to $64.57. Freeport-McMoRan Copper & Gold Inc., the largest publicly traded copper producer, slid 1.5 percent to $79.10.
Palm slumped 19 percent to $4.60. Revenue in the quarter ending in May will be less than $150 million, Chief Financial Officer Doug Jeffries said yesterday on Palm’s third-quarter conference call. Analysts in a Bloomberg survey had estimated $300 million on average.
The company also reported its 11th straight quarterly loss. Deutsche Bank AG slashed its price estimate on the stock 38 percent to $5. Canaccord cut its estimate to zero from $4 on solvency concerns.
SunPower Corp. tumbled 14 percent to $18.99 after the second-biggest U.S. supplier of solar modules said fourth- quarter profit sank 70 percent on costs to restate prior earnings because production expenses were understated.
DirecTV Group Inc. slipped 1.9 percent to $33.94. The largest U.S. satellite-television was cut to “hold” from “buy” at Citigroup Inc.
Bear Market Prediction
David Tice, chief portfolio strategist for bear markets at Federated Investors Inc., said he still expects the S&P 500 to plunge following the biggest rally since the 1930s. The measure may fall to 400, or 66 percent below yesterday’s close, he said.
“We’ve been the beneficiary of a massive credit bubble that we have not yet worked off,” Tice told Bloomberg Television. “We still have vast excesses and imbalances that still need to be worked off.”
Tice’s bearishness has proved wrong over the past year. In May, he said the index would sink to 400 within six months. He repeated the forecast in November.
Boeing rose 1.3 percent to $71.78. The world’s second- largest commercial-plane maker will accelerate planned rate increases on both the 777 and 747 programs because of increasing demand from customers.
Boeing Customer
Spirit AeroSystems Holdings Inc., which counts Boeing among its largest customers, rose the most in the Russell 1000 Index, gaining 5.1 percent to $22.63.
Best Buy Co. rose 1.9 percent to $41.22. The world’s largest electronics retailer was raised to “buy” from “neutral” at Goldman Sachs Group Inc.
U.S. health-care stocks are poised to rally if the industry overhaul being considered by Congress becomes law because it removes uncertainty and expands coverage, BlackRock Inc.’s Bob Doll said.
The companies also are “still very cheap” relative to their earnings prospects, said Doll, vice chairman and global chief investment officer for equities at New York-based BlackRock, which oversees $3.4 trillion. Amgen Inc., UnitedHealth Group Inc. and Johnson & Johnson are “favorites” at the world’s biggest asset manager, he said in an interview yesterday in Dayton, Ohio.
The House of Representatives plans to vote on a $940 billion overhaul of the U.S. health-care system that aims to extend coverage to 32 million uninsured Americans on March 21. Health-care companies and health-maintenance organizations, known as HMOs, will benefit most because more people will be insured as the U.S. population ages, Doll said.
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