U.S. Stocks Retreat, Halting Five-Day Rally; Dollar Slumps

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Published: September 11,2009

(Bloomberg) — U.S. stocks fell for the first time in six days as concern the recent rally in equities outpaced the prospects for earnings overshadowed higher-than-estimated consumer confidence and profit at FedEx Corp. Gold surged to an 18-month high as the dollar slumped for a sixth day.

Bank of America Corp. and JPMorgan Chase & Co. dropped more than 1.2 percent to drag financial shares to the steepest loss among 10 groups. CBS Corp. and Best Buy Co. helped lead consumer companies lower after analysts downgraded the shares. National Semiconductor Corp. fell 5.9 percent, the most since June, after reporting a 63 percent drop in profit. FedEx, the second-largest U.S. package- shipping company, rallied 6.4 percent.

The S&P 500 lost 0.1 percent to 1,042.73 at 4:04 p.m. in New York to trim its advance over the past four days to 2.6 percent, its best weekly gain since July. The Dow Jones Industrial Average fell 22.07 points, or 0.2 percent, to 9,605.41. Five straight gains pushed both benchmarks to their highest closes since Oct. 6 yesterday.

“We’re going to get a recovery, but it’s not normal because of the magnitude of the pressure on the U.S. consumer,” said Michael Shinnick, a South Bend, Indiana-based money manager at Wasatch Advisors Inc., which oversees $5.5 billion. “We’re more positive on businesses where there’s demand independent of where we are in the macro cycle.”

54 Percent Rebound

The S&P 500 has rebounded 54 percent from a 12-year low on March 9 amid signs the recession is easing as companies from Johnson & Johnson to Goldman Sachs Group Inc. posted earnings that beat analysts’ estimates. The rally has pushed the valuation of the index to about 19 times the reported earnings of its companies, the highest level since 2004, according to weekly data compiled by Bloomberg.

The S&P 500 gained for a fifth straight day yesterday, its longest streak since November, as rising forecasts for oil demand boosted energy shares and jobless claims slid to the lowest level since July. The benchmark gauge has not climbed for sixth consecutive days since 2007.

CBS dropped 1.6 percent to $11.76. The owner of the most- watched U.S. broadcast network was cut to “underperform” from “neutral” at Cowen & Co.

Best Buy declined 3.1 percent to $39.76. The world’s largest electronics retailer was cut to “market perform” from “outperform” at Oppenheimer & Co.

“We’re starting to see a lot of signs the economy’s there, the challenge is how far can the recovery extend out without the consumer following,” said Frank Ingarra, a Stamford, Connecticut-based money manager at Hennessy Advisors Inc., which oversees $840 million. “Everyone’s worried they’re the next shoe to drop.”

National Semi Slumps

National Semiconductor fell 5.9 percent to $15.03 for the second-biggest drop in the S&P 500 after sales declined for a fifth straight quarter. The company predicted a rebound in the current period, saying industrial demand for its chips is beginning to pick up. Yesterday, Texas Instruments Inc. raised its forecast for third-quarter sales and profit, also citing orders from industrial customers.

FedEx rallied 6.4 percent to $77.32. Earnings for the quarter ended Aug. 31 will be 58 cents a share, the company said. It had forecast 30 cents to 45 cents, and the average of 15 analyst estimates compiled by Bloomberg was 45 cents.

FedEx and United Parcel Service Inc. are considered proxies for the U.S. economy because they handle almost 80 percent of the nation’s package shipments. UPS rallied 4.4 percent to $58.80.

Confidence Improves

Benchmark indexes climbed in early trading after consumer confidence improved this month as the pace of job losses slowed and the economy showed signs of pulling out of the recession. The Reuters/University of Michigan index of consumer sentiment increased to a preliminary 70.2 this month from 65.7 in August. The index was forecast to rise to 67.5, according to a Bloomberg survey of economists.

The economy will expand at a 2.9 percent annual rate in July through September, according to the median of 61 estimates in a monthly Bloomberg News survey, compared with a forecast of 2.2 percent the previous month. Growth is projected to slow to a 2.2 percent pace during the last three months of the year.

“There’s still a lot of skeptics” concerned about the record federal deficit, unemployment and commercial real estate prices, said Edward Laux, head of trading at Cantor Fitzgerald LP in New York. “Plenty of people are still shorting stocks.”

Fifth Third Bancorp had the steepest drop in the S&P 500, sliding 6.2 percent to $9.78. The Ohio lender said Guy Eisenhuth left as head of commercial banking after less than a year on the job, the Chicago Tribune reported.

Financials Slip

S&P 500 financial stocks, which have more than doubled since their low in March, slipped 0.8 percent today. Bank of America lost 1.5 percent to $16.97 and JPMorgan retreated 1.2 percent to $42.50.

Motorola Inc. rose 8.9 percent to $8.68 for the biggest increase in the S&P 500. The largest mobile-phone maker in the U.S. had its share-price forecast raised to $12 from $10 by Deutsche Bank AG, which said the introduction of its first device based on Google Inc.’s Android software marked “a milestone in Motorola’s turnaround.”

MetroPCS Communications Inc., the Texas pay-as-you-go wireless carrier, rallied 8.3 percent to $9.62 for the second- largest gain in the S&P 500 after Reuters reported the company is talking to advisers about possible deals.

The Shanghai Composite Index rallied 2.2 percent today after output at factories in China gained 12.3 percent from a year earlier, the most since August 2008, the statistics bureau said in Beijing today.

‘Growth Cushion’

Odds of a U.S.-led “relapse” into global recession may be as high as one-in-three if any shock to the world’s biggest economy adds to depressed consumer demand, according to Stephen Roach of Morgan Stanley.

Economies emerging from recession need a “growth cushion” to avoid the possibility of a repeated slump, Roach, chairman of Morgan Stanley Asia, said in an interview in Dalian, China, yesterday, where he was attending a World Economic Forum event.

The S&P 500 is up 2.2 percent so far in September, historically the worst month for U.S. equities. The index retreated 1.3 percent on average since 1928 in that month before this year, data compiled by Bloomberg show.

The S&P 500 plunged 9.1 percent last September after Lehman Brothers Holdings Inc. collapsed. The biggest drop occurred in September 1931 during the Great Depression, when the S&P 500 tumbled 30 percent.

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