U.S. Stocks Slump as S&P 500 Drops a Third Day Following Quake
Traders work on the floor of the New York Stock Exchange in New York. Photographer: Jin Lee/Bloomberg
March 16 (Bloomberg) -- John O'Donoghue, head of equities at Cowen & Co., talks about the impact of Japan's earthquake, tsunami and nuclear crisis on the U.S. stock market. O'Donoghue speaks with Margaret Brennan on Bloomberg Television's "InBusiness." (Source: Bloomberg)
March 16 (Bloomberg) -- Housing starts in the U.S. declined more than forecast in February, marking the slowest pace since April 2009. New home construction fell 22.5 percent to a 479,000 annual rate, according to Commerce Department figures released today in Washington. Building permits, a proxy for future construction, fell 8.2 percent to a 517,000 annual pace. The producer-price index climbed 1.6 percent last month, the most since June 2009, Labor Department figures showed. Mike McKee reports with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)
U.S. stocks retreated, driving the Standard & Poor’s 500 Index lower for a third straight day, amid concern that Japan’s nuclear crisis will worsen.
The S&P 500 pared its retreat after the Associated Press reported Tokyo Electric Power Co. says a power line that may solve the nuclear crisis at its facility is almost ready. KB Home (KBH) and D.R. Horton Inc. slid at least 2.8 percent, pacing declines in homebuilders, as housing starts plunged to the lowest level in almost a year. International Business Machines Corp. (IBM) fell 4.4 percent as Sanford C. Bernstein & Co. cut its rating on the shares.
The S&P 500 retreated 1.4 percent to 1,264.57 at 2:49 p.m. in New York, trimming its loss from 2.6 percent. The Dow Jones Industrial Average decreased 175.21 points, or 1.5 percent, to 11,680.21.
“The risks have risen and you have to be mindful of them,” said David Joy, chief market strategist at Columbia Management in Boston, which oversees $350 billion. “It’s difficult to nail down what’s accurate information coming out of Japan and what isn’t. There’s concern that the problems at the nuclear plants are far more serious than the problems associated with the earthquake. In addition to that, there’s ongoing housing weakness in the U.S. and a fear premium built into the oil market. That’s why you have to hedge your bets.”
Emergency Meeting
The United Nations’ nuclear agency will call an emergency meeting to discuss the crisis in Japan as a breach at the stricken Fukushima Dai-Ichi plant increased the risk of a radioactive leak. IAEA Chief Yukiya Amano is flying to Tokyo to talk with authorities today and will return for the meeting as soon as possible, he told reporters in Vienna. It will be the first extraordinary meeting of the agency’s 35-member board since his election to succeed Mohamed ElBaradei two years ago.
The containment vessel of Dai-Ichi’s No. 2 reactor may have been breached, and pressure in the chamber fell “substantially,” said Masahisa Otsuku, a Tokyo Electric Power nuclear maintenance official. The company suspected damage following an explosion in the reactor building March 15. About 70 percent of the fuel rods at the plant’s No. 1 reactor and a third of the No. 2 reactor’s fuel may have been damaged, and temperatures at spent-fuel-rod-cooling pools were rising, Tepco said.
The S&P 500 slumped 1.7 percent during the prior two days after a 9-magnitude earthquake, the biggest in Japan’s history, struck the northeast part of the country on March 11.
‘Armageddon Scenario’
“Investors have priced in an Armageddon scenario,” said Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $53 billion. “If we find that there’s stabilization coming into those nuclear facilities in Japan, investors will turn around and look at the alternatives. People are wary, but at the same time there’s a notion that the economic basis continues to show strength.”
Japan’s earthquake should have a “limited” impact on U.S. growth, said Alec Phillips, a Goldman Sachs Group Inc. economist based in Washington. Disruptions to Japanese output could shift demand to U.S. products, according to Phillips.
The iShares MSCI Japan Index Fund (EWJ) declined 5 percent to $9.53 in U.S. trading, dropping to the lowest level since August on a closing basis. Qualcomm Inc. (QCOM), the biggest maker of mobile- phone chips, and Coach Inc. (COH), the largest U.S. maker of luxury leather handbags, slumped at least 3.8 percent amid concern Japan’s sales will suffer.
VIX Surges
The benchmark index for U.S. stock volatility rose for a third day, reaching its highest intraday level since July, as traders snapped up more options to guard against stock declines spurred by Japan’s nuclear crisis. The VIX, as the Chicago Board Options Exchange Volatility Index is known, gained 15 percent to 28.05. It has gained 40 percent over three days. The VIX index measures the cost of insuring against drops in the S&P 500.
Equity futures fell after the Commerce Department said housing starts dropped 22.5 percent to a 479,000 annual rate. The decline from January was the biggest since March 1984. The median forecast in a Bloomberg News survey called for a 566,000 rate. Building permits, a proxy for future construction, fell 8.2 percent to a 517,000 annual pace.
The producer-price index climbed 1.6 percent from the prior month, the most since June 2009, Labor Department figures showed today in Washington. The median projection in a Bloomberg News survey was for a 0.7 percent gain. The so-called core measure, which excludes volatile food and energy costs increased 0.2 percent, matching forecasts.
Homebuilders Drop
A gauge of homebuilders in S&P indexes declined, as 11 of the 12 components retreated. KB Home slumped 3.9 percent to $12.69. D.R. Horton sank 2.8 percent to $11.64. IBM declined 4.4 percent to $152. The computer services company was cut to “market perform” from “outperform” at Sanford C. Bernstein.
Apple Inc. (AAPL) fell 4.9 percent to $328.57. The maker of iPads and iPhones was downgraded to “market perform” from “market outperform” at JMP Securities.
Pessimism on U.S. stocks rose for the third straight week, according to Investor Intelligence’s analysis of investment newsletters between March 9 and yesterday. About 22 percent of writers were bearish on U.S. stocks, up from 21 percent last week, according to the New Rochelle, New York-based firm, which has examined forecasts in newsletters since 1963. About 52 percent of investors were bullish, while 26 percent anticipate a correction, or 10 percent decline, in the market.
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