U.S. Stocks Fall as Commodities Decline on China Concern

U.S. stocks declined, snapping a three-day advance for the Standard & Poor’s 500 Index, as commodities fell on concern about a Chinese economic slowdown.

Industrial and commodity shares slumped as China raised fuel prices by the most in two years and BHP Billiton Ltd. said the nation’s steel production is slowing. Caterpillar Inc. and Alcoa Inc. (AA) dropped more than 1.5 percent. Adobe Systems Inc. (ADBE) sank 3.9 percent as its profit forecast missed some estimates. Bank of America Corp. jumped 2.9 percent. Tiffany & Co. (TIF) surged 6.7 percent after forecasting profit that beat projections.

The S&P 500 retreated 0.3 percent to 1,405.52 at 4 p.m. New York time, after the benchmark measure yesterday advanced to the highest level since May 2008. (SPX) The Dow Jones Industrial Average declined 68.94 points, or 0.5 percent, to 13,170.19 today. The Russell 2000 Index of small companies slumped 1 percent to 829.24. About 6.2 billion shares changed hands on U.S. exchanges, or 6.5 percent below the three-month average.

“A Chinese slowdown is inevitable,” said Peter Jankovskis, who helps manage about $2.9 billion at Oakbrook Investments in Lisle, Illinois. “It’s possible that will take some of the heat out of commodities. Yet China is not the only growth story out there. China will continue to be an important player, but the U.S. economy seems to have found its legs.”

Equities fell as China is raising fuel prices for the second time in less than six weeks. The nation’s vehicle sales may miss industry forecasts this year as economic growth slows, an official from the China Association of Automobile Manufacturers said. BHP Billiton (RIO), the world’s biggest mining company, said China’s steel production is slowing. In the U.S., housing starts hovered in February near a three-year high.

$3.6 Trillion

The S&P 500 has rallied 12 percent this year amid better than estimated economic and corporate data. More than $3.6 trillion was restored to U.S. equity values since last year’s low for the benchmark gauge in October. The rally drove the index to about 14.6 times reported earnings yesterday, the highest valuation level since July.

Companies most dependent on economic growth had the biggest declines in the S&P 500. The Dow Jones Transportation Average retreated 1.3 percent. A gauge of homebuilders in S&P indexes dropped 1 percent as 10 of its 11 stocks fell.

Measures of industrial and commodity shares in the S&P 500 dropped more than 0.5 percent. Caterpillar (CAT), the world’s biggest maker of construction and mining-equipment, slumped 2.6 percent to $110.76. Alcoa Inc., the largest U.S. aluminum producer, slid 1.5 percent to $10.44. Peabody Energy Corp. (BTU), the biggest U.S. coal producer, declined 5.4 percent to $31.64.

Adobe, Disney

Adobe sank 3.9 percent to $33.16. Excluding some costs, profit will be 57 cents to 61 cents a share in the second quarter, Adobe said. The midpoint of that range -- 59 cents -- missed the 60 cents predicted by analysts, according to data compiled by Bloomberg.

Walt Disney Co. (DIS) dropped 0.5 percent to $43.24. The world’s largest entertainment company said the box-office disappointment “John Carter” will post a loss of about $200 million, possibly the biggest ever for a single film.

A rally in financial companies helped the S&P 500 trim a decline of as much as 0.9 percent. The KBW Bank Index (BKX) added 0.4 percent. Bank of America rallied 2.9 percent, the most in the Dow, to $9.81. Morgan Stanley (MS) gained 1.7 percent to $20.41.

Jefferies Group Inc. (JEF) climbed 2.3 percent to $19.49. The investment bank that surged by almost half during the fiscal first quarter reported a profit decline that was smaller than analysts estimated as net revenue climbed to a record.

Tiffany Surges

Tiffany surged 6.7 percent to $73.27. The company is benefiting from stock-market gains that have prompted luxury consumers to resume jewelry purchases, a turnabout from January, when the retailer said weak spending from U.S. customers had slowed holiday sales.

Apple Inc. (AAPL) added 0.8 percent to a record $605.96. The Cupertino, California-based technology provider yesterday disclosed plans to pay a dividend and buy back $10 billion of stock.

Barton Biggs, the hedge-fund manager who increased bets on equities before the S&P 500 rallied this year, is getting more bullish.

“I’ve been gradually increasing and I’m up to 90 percent now,” said Biggs, referring to the proportion of his fund that benefits from higher share prices. He spoke in a radio interview today on “Bloomberg Surveillance” with Tom Keene. “There is an awful lot of money that is out of stocks and in very low- yielding fixed-income instruments. I think the odds are that money is going to migrate back.”

Net Long

Biggs, the founder of the Traxis Partners LP, said last month that his net-long position, a gauge of bullish versus bearish investments, in stocks is about 75 percent, up from 65 percent in January.

Treasuries rebounded today following the longest drop since 2006, with yields on 10-year notes falling to 2.36 percent. U.S. stocks posted the best returns when 10-year Treasury yields rose to close to 4 percent, according to a study by S&P that tracked market performance since 1953.

The S&P 500 advanced 1.7 percent a month on average during periods when 10-year yields climbed to a range of 3 percent to 4 percent, according to data compiled by New York-based S&P. That’s the best performance among six categories of rising yields studied by the firm. Stocks began to fall when yields exceeded 6 percent, the study found.

While rising yields tend to boost borrowing costs for companies and act as “a depressant in intrinsic value calculations,” they can also suggest a strengthening economy and prompt investors to switch to equities, according to Sam Stovall, S&P’s chief equity strategist.

“The ‘sweet spot’ for equity prices appears to be a rising rate environment between 3 percent and 4 percent, as a growing economy reduces unemployment while increasing corporate earnings, yet does not trigger growth-slowing efforts by the central bank,” Stovall wrote in a report yesterday.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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