Equities, Commodities Drop on Trichet, Dell; Dollar, Yen Rise
Nov. 20 (Bloomberg) -- Stocks and commodities fell afterEuropean Central Bank President Jean-Claude Trichet said policymakers will withdraw emergency cash gradually and Dell Inc.’searnings trailed analysts’ estimates. The yen and dollar rose.
The Standard & Poor’s 500 Index slipped 0.5 percent to1,089.37 at 11:58 a.m. in New York as Dell tumbled the most thisyear to lead declines in technology shares. Europe’s Dow JonesStoxx 600 Index and the MSCI Asia-Pacific Index dropped for thefourth straight day, the longest streaks in four months. Crudeoil declined as the Dollar Index gained as much as 0.8 percent.
“We live in a world where on a day-to-day basis all riskassets move in the same direction, and it’s the oppositedirection from the dollar,” said John Kattar, who oversees $1.6billion as chief investment officer at Eastern InvestmentAdvisors in Boston. “There is a lot of good news built intostock prices, and stocks are more or less fairly valued giventhe fundamentals.”
U.S. equities fell for a third straight day, with the S&P500 poised for its first weekly decline since October. The DowJones Industrial Average lost 44.06 points, or 0.4 percent, to10,288.28. Declines were limited today as J.M. Smucker Co. ledgains in consumer staples companies after the maker of jams andJif peanut butter reported better-than-estimated earnings.
Rebound Stalls
The S&P 500 rose as much as 64 percent from a 12-year lowin March, closing at a 13-month high of 1,110.32 on Nov. 17. Thedeepest U.S. economic contraction in seven decades ended in thethird quarter, when government incentives spurred consumers tospend more on homes and cars. Corporate profits, which haveshrunk from year-earlier levels for a record nine straightquarters, are projected to rise in the current period, accordingto analyst estimates compiled by Bloomberg.
Dell, the third-largest maker of personal computers, slidas much as 9.7 percent after reporting a 54 percent drop inprofit.
“In an economy that’s growing slowly, we’re finding somecompanies that are continuing to execute well and some that arefaltering,” said Alan Gayle, senior investment strategist atRidgeworth Capital Management in Richmond, Virginia. “Themarket wants to see companies that can deliver on their businessmodel, and it’s pretty clear Dell’s business model isn’t aseffective as it has been in years past.” Ridgeworth manages $60billion.
D.R. Horton Inc. tumbled 12 percent for the steepest lossin the S&P 500. The second-largest U.S. homebuilder by revenuereported a fourth-quarter loss of 73 cents per share, threetimes wider than the average estimate of analysts surveyed byBloomberg. All 12 shares in an index of homebuilders retreated,with Pulte Homes Inc., Lennar Corp. and KB Home each slumping atleast 4 percent.
Smucker Rallies
J. M. Smucker added 4.9 percent. Second-quarter earningsexcluding some items were $1.22 a share, 18 percent higher thanthe average analyst estimate, as sales of Folgers coffee helpedboost revenue by 52 percent.
Per-share earnings topped the average analyst estimate at80 percent of S&P 500 companies that have released third-quarterresults, the biggest share for a full quarter in Bloomberg datagoing back to 1993. Still, combined profits are down 14 percentfrom the year-earlier period.
Dillard’s Inc. added 9.1 percent to $15.58 after thedepartment-store chain was raised to “buy” from “hold” andits share price estimate increased to $28 from $13.50 atDeutsche Bank AG, which said the company is positioned betterthan almost all investors estimate to increase earnings based onmerchandising and cost control initiatives.
Trichet’s Liquidity Concern
European stocks slipped as Trichet said the ECB will removeliquidity in order to ensure the bank doesn’t fuel inflation.
“Not all our liquidity measures will be needed to the sameextent as in the past,” Trichet said at a conference inFrankfurt today. “Any non-standard measure whose continuationwould pose a threat to the achievement of price stability mustbe undone promptly and unequivocally.”
Trichet has already signaled the ECB is unlikely to renewits offer of 12-month loans to banks after the third installmentin December. Council member Guy Quaden indicated this week thatthe bank may offer fewer three-month and six-month loans nextyear. At the same time, policy makers have stressed the exitfrom emergency lending measures doesn’t necessarily imply theywill raise interest rates soon.
“Stocks all over the world and all risk asset classes arebeing driven by this liquidity factor,” which also is reflectedin U.S. dollar weakness, Eastern Investment Advisors’ Kattarsaid.
Dollar Gains
The Dollar Index, which gauges the dollar against a basketof six major currencies, rose 0.3 percent. It has climbed threeout of the last four days after touching a 15-month low on Nov.16. The U.S. currency gained against 15 of the world’s 16 majorcurrencies. It was unchanged against the yen, which also roseagainst its 15 most-traded currencies.
Europe’s Dow Jones Stoxx 600 Index lost 0.8 percent, led byreal-estate and financial shares. Asian shares declined afterSony Corp. said it will take longer to reach its profitabilitytargets. Sony slid 2.4 percent in Tokyo.
Additional strength in the dollar “is the primary near-term risk to equities,” Myles Zyblock, a strategist at RBCCapital Markets in Toronto, wrote in a report today.
Energy companies in the S&P 500 fell 1.2 percent as agroup, the biggest decline among the benchmark’s 10 industrygroups, as the dollar’s rebound spurred drop in the price ofcrude oil.
Materials companies fell 1 percent as other dollar-denominated commodities including gold, silver, aluminum andnickel also retreated. Freeport-McMoRan Copper & Gold Inc. andNewmont Mining Corp. lost at least 1.4 percent.
Treasury three-month bill rates turned negative yesterdayfor the first time since December as investors were willing topay for the safety of the shortest-dated U.S. government assets.
To contact the reporter on this story:Elizabeth Stanton in New York at estanton@bloomberg.net.
Last Updated: November 20, 2009 12:04 ESTSource: Bloomberg
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