U.S. Stocks Retreat as Greece Overshadows Stimulus Bets

Sept. 10 (Bloomberg) -- David Bianco, chief U.S. equity strategist at Deutsche Bank AG, talks about the outlook for the U.S. equity market and corporate earnings. He speaks with Tom Keene and Sara Eisen on Bloomberg Television's "Surveillance." (Source: Bloomberg)

U.S. stocks fell, after the Standard & Poor’s 500 Index rose to the highest level since 2008, as concern over Greece’s debt crisis overshadowed speculation central banks will take action to spur the economy.

Intel Corp. (INTC) lost 3.8 percent after Morgan Stanley cut its earnings forecasts and Nomura Holdings Inc. said estimates for the largest chipmaker’s profit next year may fall further. Apple Inc. (AAPL) dropped 2.6 percent as technology shares tumbled 1.3 percent, the most among 10 S&P 500 groups. International Paper Co. (IP) slid 4.2 percent after Deutsche Bank AG cut its rating.

The S&P 500 fell 0.6 percent to 1,429.08 at 4 p.m. in New York. The Dow Jones Industrial Average slid 52.35 points, or 0.4 percent, to 13,254.29. The Nasdaq Composite Index lost 1 percent to 3,104.02. About 5.6 billion shares traded hands on U.S. exchanges, 7.3 percent below the three-month average, while the Chicago Board Options Exchange Volatility Index, known as the VIX, rose 13 percent, the biggest jump in seven weeks, to 16.28.

“Europe will continue kicking the can down the road and there’s no quick solution,” Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama, said in a telephone interview. “Macro numbers have been very unimpressive, but there’s this aspect of expansionary monetary policy decisions that have been driving prices higher.” He said, “The market will turn on what the Federal Reserve does this week.”

The S&P 500 climbed last week to a four-year high after the European Central Bank approved a bond-buying plan and investors bet Fed Chairman Ben S. Bernanke will continue to support economic growth. The equities index is 20 percent above its level on Sept. 15, 2008, the first trading day after Lehman Brothers Holdings Inc. filed the world’s biggest bankruptcy and prompted a 46 percent drop through March 9, 2009. The gauge is less than 10 percent from its record closing high after rising 14 percent this year.

Further Stimulus

Bets on further stimulus measures have increased as data last week showed payrolls rose less than projected and the unemployment rate was unexpectedly driven down by Americans leaving the labor force. On Aug. 31, Bernanke cited his concern about the jobless rate and said the central bank will provide additional stimulus as needed to promote a stronger recovery. The Fed’s Open Market Committee meets this week and will release a statement on Sept. 13.

Stocks declined earlier today as Greek Prime Minister Antonis Samaras was meeting officials from the nation’s creditors after failing to secure agreement from coalition partners on spending cuts. Greece’s Democratic Left leader Fotis Kouvelis, whose party is one of the three in the coalition government, said that no decision had been made on the cuts required to obtain further aid for the country’s bailout, and that poorer citizens must be protected from austerity measures.

Court Ruling

Germany’s Federal Constitutional Court is due to rule on the country’s participation in the European Stability Mechanism, a permanent 500 billion-euro fund that offers loans to member states and may buy their bonds to lower borrowing costs.

“The euro zone is a problem that is so difficult to solve, we’re going to continue to live with it for many months or even longer,” Stanley Nabi, who helps oversee more than $11 billion as vice chairman of New York-based Silvercrest Asset Management Group, said in a telephone interview. “Who is going to step in and finance Greece here? We can’t continue to throw good money after bad. This is not a temporary situation.”

In Asia, a report showed imports into China slid 2.6 percent in August from a year earlier, the nation’s customs bureau said. Economists in a Bloomberg survey had forecast growth of 3.5 percent. Exports rose 2.7 percent, slower than estimated. Industrial production increased 8.9 percent, the National Bureau of Statistics said yesterday.

‘Tipping Point’

“We could be much closer to the tipping point for more policy action as the slowdown in the external sector -- if it were to persist -- may bring more pressure on employment,” Morgan Stanley wrote in a report today.

Technology, financial and industrial companies posted the biggest losses today out of 10 groups in the S&P 500, erasing at least 0.7 percent. Bank of America Corp. (BAC) sank 2.5 percent to $8.58. Boeing Co. (BA) dropped 2.5 percent to $71.08. Apple tumbled 2.6 percent to $662.74.

Intel lost 3.8 percent to $23.26 for the biggest drop in the Dow. Morgan Stanley reduced its third-quarter revenue and earnings projections, saying the company faces margin erosion ahead. Estimates for the Santa Clara, California-based company have further downside risk due to headwinds facing notebook shipments and decelerating demand in China, according to Nomura’s Romit Shah. Intel slashed its third-quarter sales forecast last week.

International Paper

International Paper dropped 4.2 percent to $34.79. Deutsche Bank’s Mark Wilde cut his recommendation on the world’s largest paper and pulp producer and other containerboard makers, saying price increases are “not a done deal.” He cited the Institute for Supply Management’s manufacturing report for August that was below 50, which is the dividing line between expansion and contraction.

American International Group Inc. (AIG) retreated 2 percent to $33.30. The U.S. Treasury is offering to sell $18 billion of shares in a transaction that may cut taxpayers’ stake in the firm to below 50 percent for the first time since its 2008 bailout. The insurer plans to buy back as much as $5 billion of the shares and Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and JPMorgan Chase & Co. are managing the sale, the Treasury said yesterday in a statement.

Titan Machinery

Titan Machinery Inc. (TITN) plunged 23 percent to $19.41. The owner of agricultural and equipment stores reduced its forecast for 2012 earnings. It estimates profit to be no more than $2.30 a share, compared with an earlier prediction of at least $2.55 a share. The company also reported second-quarter earnings of 25 cents a share, missing the average analyst estimate of 43 cents.

Plains Exploration & Production Co. (PXP) sank 11 percent to $36.09. The oil company said it agreed to buy BP Plc’s interests in certain deepwater Gulf of Mexico oil and natural-gas assets for $5.55 billion. The assets have production equivalent to 59,500 barrels of oil a day.

Michael Kors Holdings Ltd. (KORS) declined 4.5 percent to $53.50. The high-fashion retailer said last week after markets closed that some of its investors will sell 20 million shares in a so- called secondary sale.

Telephone stocks posted the only gain among 10 S&P 500 group. Verizon Communications Inc. (VZ) added 0.8 percent to $44.06.

Sprint Jumps

Sprint Nextel Corp. (S), the third-largest U.S. wireless carrier, rose 2.4 percent to $5.15. Mike McCormack, a Nomura analyst in New York, raised his recommendation on Sprint to buy from neutral in a report today, citing cost savings from the company’s network-improvement plan. He now expects Sprint’s shares to reach $7 over the next 12 months, up from a previous target of $2.50.

Hewlett-Packard Co. (HPQ) jumped 0.8 percent to $17.43. The world’s largest personal-computer maker expanded the total job cuts under its reorganization plan announced in May to 29,000, more than it had originally disclosed.

The S&P 500 will surge through the end of 2013 to a record 1,615 as an improvement in capital investment and industrial production boost earnings, Citigroup Inc. strategists led by Tobias Levkovich wrote in a report dated Sept. 7. Gamco Investors Inc.’s Howard Ward also said U.S. stocks may rally to record highs in the next four months as consumers increase spending and help drive up corporate earnings.

‘Key Message’

“The key message to investors is get in stocks,” Ward, a fund manager who helps oversee $35.6 billion at Gamco in Rye, New York, said in a television interview on “Bloomberg Surveillance” with Tom Keene and Sara Eisen. “It’s not too late. If we can avoid a fiscal cliff-driven, recession-type of hit, we’re going to have a new high in stocks in the next three to four months.”

A deal by U.S. lawmakers to head off automatic tax increases and spending cuts at the start of next year may be “messy” and could hurt stocks, Goldman Sachs Group Inc.’s chief U.S. equity strategist David Kostin said. The automatic spending cuts totaling about $1.2 trillion would be carried out beginning Jan. 2 unless lawmakers reach a deal to cancel or modify them.

The so-called fiscal cliff “is unlikely to be resolved in a smooth fashion, and probably will be resolved in a messy way,” Kostin said today at a conference in San Diego sponsored by the Insured Retirement Institute.

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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