U.S. Stocks Fall on Europe Woes After Last Week’s Rally

Photographer: Mario Tama/Getty Images

Traders work on the floor of the New York Stock Exchange during afternoon trading on Sept. 14, 2012. Close

Traders work on the floor of the New York Stock Exchange during afternoon trading on Sept. 14, 2012.

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Photographer: Mario Tama/Getty Images

Traders work on the floor of the New York Stock Exchange during afternoon trading on Sept. 14, 2012.

U.S. stocks fell, pulling the Standard & Poor’s 500 Index down from the highest level since 2007, as European finance chiefs deadlocked at debt-crisis talks and New York-area manufacturing slumped.

Bank of America Corp. (BAC) and Morgan Stanley slid more than 2.4 percent after two weeks of gains. Alcoa Inc. (AA) tumbled 2.6 percent as commodity shares plunged. Cliffs Natural Resources Inc. (CLF) lost 7 percent after its rating was cut by JPMorgan Chase & Co. (JPM) Apple Inc. (AAPL) gained 1.2 percent as pre-orders of its iPhone 5 topped 2 million units in one day. Office Depot Inc. (ODP) rose 5.3 percent after Starboard Value LP took a stake in the company.

The S&P 500 slid 0.3 percent to 1,461.19 at 4 p.m. in New York. The Dow Jones Industrial Average dropped 40.27 points, or 0.3 percent, to 13,553.1. About 5.7 billion shares traded hands on U.S. exchanges today, 5.4 percent below the three-month average.

“It looks like we need to take a small breather after the sizable rally that we’ve had,” Randy Frederick, managing director of active trading and derivatives at Charles Schwab Corp., said in an interview from Austin, Texas. His firm has $1.83 trillion in client assets. “There’s the potential for a small pull-back, but I think we will move back into the bull territory later in the week unless there’s an unexpected negative news event.”

EU Concern

The S&P 500 rallied last week to the highest level since December 2007 as the Federal Reserve’s plan to buy mortgage securities fueled demand for riskier assets. Commodity, financial and industrial shares had the biggest gains among 10 groups in the benchmark gauge, helping to extend its two-week advance to 4.2 percent. The index is about 7 percent away from its all-time high set in October 2007.

Stocks fell today as European Union finance ministers failed to agree on a timetable for a more unified banking sector and clashed over terms of bailout requests and the role of the European Central Bank at a meeting Sept. 14 in Cyprus. Citigroup Inc. became the latest bank to cut its growth forecast for China. At least 13 banks and brokerages have reduced their 2012 economic growth forecasts for the world’s second-largest economy this month.

Empire Manufacturing

U.S. equities also declined as the Federal Reserve Bank of New York’s general economic index dropped to minus 10.41, the lowest since April 2009, from minus 5.85 in August. The median forecast of 53 economists in a Bloomberg survey called for minus 2. Readings less than zero signal contraction in the so-called Empire State Index that covers New York, northern New Jersey and southern Connecticut.

“To me the only question is if the stock market is going to correct its current overbought condition by going sideways, or if it is going to correct back to the 1,400-1,422 support,” Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, wrote in an e-mail today. His firm oversees $350 billion.

Financial and commodity shares had the biggest declines among 10 groups in the S&P 500. The Morgan Stanley Cyclical Index (CYC) tumbled 1.2 percent after rallying for four straight days. The Dow Jones Transportation Average slipped about 1.5 percent and the S&P Supercomposite Homebuilding (S15HOME) Index lost 1.9 percent after rallying 8.5 percent last week.

The KBW Bank Index declined 1.7 percent as 23 of its 24 companies slipped. Bank of America, which climbed 20 percent in the past two weeks, tumbled 2.6 percent to $9.30 for the second- biggest drop in the Dow. Morgan Stanley (MS) declined 2.4 percent to $17.80. Wells Fargo & Co. (WFC) fell 2.2 percent to $35.33 after Stifel Nicolaus & Co. cut the fourth-largest U.S. bank by assets to hold from buy.

Commodities Slide

Alcoa, the largest U.S. aluminum producer, fell the most in the Dow, sliding 2.6 percent to $9.58, as the S&P GSCI Spot Index of 24 commodities fell 2.2 percent, the most since July.

Cliffs Natural Resources slipped 7 percent to $42.36 for the biggest decline in the S&P 500. JPMorgan downgraded the stock to neutral from overweight.

Netflix Inc. (NFLX) fell 5.8 percent to $57.02. The world’s largest video-subscription service was rated underperform in new coverage at Macquarie Capital USA Inc.

Boeing Co. (BA) lost 1.9 percent to $69.92. Oppenheimer & Co. analyst Yair Reiner said shares of the world’s largest maker of cargo aircraft may fall, citing GEnx engine issues after one cracked on a Boeing 787 Dreamliner during testing in Charleston, South Carolina, on July 28, spewing hot metal parts.

Apple Rises

Apple gained 1.2 percent to a record $699.78 and exceeded $700 in extended trading for the first time ever. Pre-orders of its iPhone 5 topped 2 million units in one day, more than double the sales record set by the previous model of the device. Because demand for the iPhone 5 exceeds the initial supply, some pre-orders will be delivered to customers in October, rather than September as previously planned, Apple said today in a statement.

Office Depot rose 5.3 percent to $2.60. Starboard Value, a New York-based investment firm, took a 13.3 percent stake in the company, becoming its largest shareholder, and said the retailer must improve its financial results.

Gilead Sciences Inc. (GILD) rose 6.1 percent, the most in the S&P 500 (SPXL1), to $65.80 after JPMorgan analyst Geoff Meacham said the company’s AIDS drug, called Stribild, may emerge as a market leader based on a survey of 52 HIV specialists.

Obama Rally

As politicians debate whether Americans are better off than they were four years ago, the stock market is saying yes. With 50 days before the national election, the S&P 500 has rallied 82 percent and touched a four-year high since President Barack Obama took office.

The advance puts the gauge closer to the all-time high than any of the world’s biggest stock markets, data compiled by Bloomberg show. The benchmark index of American equity is trading at 14.9 times reported earnings, the biggest discount to MSCI’s global measure since March 2010.

“We are in a healthier state right now,” Chris Hyzy, who helps oversee about $325 billion as chief investment officer of U.S. Trust in New York, said in a Sept. 12 phone interview. “Next year, we think the growth clip in the United States and the globe is going to be better than expected. Over the next three years, we are bullish.”

To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Amanda Gould in New York at agould27@bloomberg.net

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

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