S&P 500 Ends Five-Day Rally Amid Stalemate Over Greek Debt Talks
U.S. stocks retreated, ending a five-day advance in the Standard & Poor’s 500 Index, amid a stalemate between European finance ministers and Greek bondholders over how to resolve the nation’s debt crisis.
Travelers Cos., the only insurer in the Dow Jones Industrial Average, sank 3.8 percent as earnings fell. McDonald’s Corp. (MCD) slid 2.2 percent after saying that foreign- currency fluctuations will cut 2012 profit. Verizon Communications Inc. dropped 1.6 percent as it reported a loss. Peabody Energy Corp. (BTU) declined 1.7 percent as earnings missed estimates. Apple Inc. (AAPL) surged 7.7 percent at 5:07 p.m. New York time after reporting record quarterly sales and profit.
The S&P 500 fell 0.1 percent to 1,314.65 at 4 p.m. New York time. The benchmark gauge for American equities rose 2.1 percent over the previous five days. The Dow Jones Industrial Average retreated 33.07 points, or 0.3 percent, to 12,675.75.
“It’s all about the negotiations of Greek debt,” Mike Ryan, the New York-based chief investment strategist at UBS Wealth Management Americas, said in a telephone interview. His firm oversees $715 billion. “There’s concern that, if it spills over, it undermines some of the progress being made. I’m still not convinced that they solved all of their problems. The next question is how deep of an impact that will have on earnings.”
Global stocks slumped as European finance ministers pushed bondholders to provide greater debt relief for Greece, spurring concern the nation may fail to make a March 20 bond payment. The International Monetary Fund cut its forecast for the global economy. President Barack Obama tonight will lay out what he calls a “blueprint” for revitalizing the economy in his third State of the Union address before a joint session of Congress.
The S&P 500 yesterday capped its longest rally since December as data bolstered confidence in the economy and most quarterly reports exceeded forecasts. Of the 74 companies in the S&P 500 that reported results since Jan. 9, 48 posted per-share earnings that beat projections, Bloomberg data show.
Travelers retreated 3.8 percent, the most in the Dow, to $58. The insurer said fourth-quarter profit fell on lower investment income and a smaller reserve benefit, capping the company’s least profitable year since 2004.
McDonald’s declined 2.2 percent to $98.75. The company, which gets about 60 percent of its revenue outside the U.S., said profit may be trimmed as the European debt crisis sinks the region’s currency. Foreign-exchange fluctuations may cut 2012 profit by as much as 18 cents a share and first-quarter earnings by as much as 3 cents, Chief Financial Officer Peter Bensen said today on a conference call.
A measure of phone companies had the biggest loss in the S&P 500 among 10 groups, slumping 1.3 percent. Verizon (VZ) slid 1.6 percent to $37.79. The second-largest U.S. phone company reported a fourth-quarter loss after booking a pension charge and having higher subsidy costs for rising iPhone sales. On a conference call, Verizon gave a 2012 earnings-forecast range whose bottom trailed analysts’ estimates. AT&T Inc. (T) declined 1 percent to $30.09.
Peabody retreated 1.7 percent to $36.86. Sales from Australian mines fell to 6.2 million tons from 6.7 million tons. “Geological issues” reduced output at North Goonyella in Australia, Peabody said. The company is also moving a longwall, a type of coal face at an underground mine, at the Twentymile pit in Colorado, which will interrupt production there.
Zions Bancorporation (ZION) had the biggest loss in the S&P 500, falling 7.6 percent to $17.15. The Salt Lake City-based bank was cut to “hold” from “buy” at Stifel Nicolaus & Co. after reporting fourth-quarter earnings that missed the average analyst estimate.
Coach Inc. (COH) jumped 5.8 percent to $67.97. The largest U.S. luxury handbag maker reported a 15 percent increase in quarterly profit that topped analysts’ estimates, driven by holiday sales in North America.
Waters Corp. (WAT) soared 8 percent, the most in the S&P 500, to $85.04. The maker of laboratory products and instruments posted quarterly profit and sales that beat analysts’ estimates.
Apple surged 7.7 percent to $452.68 as it reported results after regular trading hours. Holiday purchases of the new iPhone helped the company steer clear of the consumer spending slump that has hurt rival technology companies.
Earnings probably grew 3.4 percent for S&P 500 companies in the fourth quarter, according to a Bloomberg survey of analysts. The projection has fallen from 6.2 percent at the end of last year. The global economy is forecast to grow 2.3 percent in 2012, according to the median projection in a survey of economists, down from the estimate of 3.4 percent in July.
“The market is not terribly disappointed by what appear to be soft earnings compared to where we’ve been,” David Joy, the Boston-based chief market strategist at Ameriprise Financial Inc., said in a telephone interview. His firm oversees $600 billion. “There’s a creeping sense of optimism that things are going to improve. That lessens the fear that along with softness in Europe we’ll have a global recession.”
Collective Brands Inc. (PSS) rallied 6.4 percent to $15.89. The company may extract the biggest takeover premium of any apparel retailer in the world as the maker of Saucony and Sperry Top- Sider shoes lures private equity buyers.
Collective Brands, which said in August it was reviewing options to boost shareholder value, may attract interest from buyout firms and rivals such as Wolverine World Wide Inc. (WWW) when bids are due next week, according to people familiar with the process. The company, which also owns the Payless ShoeSource chain, could be worth as much as $27 a share based on the value of its separate businesses, Morningstar Inc. said.
Half the Price
While the 87 percent premium would be the largest of any deal in the industry worth at least $100 million, it still allows acquirers to get Collective Brands at half the price of its competitors relative to sales, according to data compiled by Bloomberg. In a breakup, an apparel company could keep the wholesale brands, which boosted sales by 25 percent in the first nine months of 2011, while a private equity firm would run the Payless chain for its cash flow, Auriga USA LLC said.
“On the retail side of the business, this seems like almost a perfect set-up for a private equity company,” R.J. Hottovy, director of consumer research at Chicago-based Morningstar, said in a telephone interview. “The wholesale brands alone would be an attractive acquisition target for any of the major branded footwear players.”
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