January 31, 2012, 1:12 PM EST
By Rita Nazareth
Jan. 31 (Bloomberg) — U.S. stocks reversed gains, sending the Standard & Poor’s 500 Index toward its longest decline since November, as reports showed consumer confidence trailed economists’ projections and business activity cooled.
Exxon Mobil Corp., the largest energy company by market value, dropped 2.1 percent amid lower-than-forecast sales. United Parcel Service Inc., the biggest package-delivery company which is considered a proxy for the economy, slid 1.1 percent after reporting sales that missed analysts’ projections. Archer Daniels Midland Co. tumbled 5 percent as the grain processor reported an 89 percent plunge in earnings. Goldman Sachs Group Inc. rose 1.9 percent, leading financial shares higher.
The S&P 500 declined 0.3 percent to 1,309.78 at 12:43 p.m. New York time, reversing an advance of as much as 0.6 percent. The Dow Jones Industrial Average retreated 51.80 points, or 0.4 percent, to 12,601.92.
“People are on the fence with respect to whether we accelerate in economic terms and slow down again,” John Carey, a Boston-based money manager at Pioneer Investments, said in a telephone interview. The firm oversees about $220 billion. “We’d like to see better economic growth for sure,” he said. The European crisis “is maybe something that we’ll have to live with. It’s just never ending.”
Stocks erased gains as reports showed that consumer confidence unexpectedly dropped in January and a gauge of business activity fell, underscoring forecasts that the U.S. economy will cool after expanding at the fastest pace since the second quarter 2010. Earlier gains were triggered after most countries in Europe agreed to tighter budget controls and Greece made progress on debt talks.
Earnings Season
Today’s decline trimmed the S&P 500’s monthly rally to 4.1 percent. The benchmark gauge headed for the second month of gains amid the Federal Reserve’s plans to keep interest rates low through at least late 2014 and better-than-estimated earnings. Of the 192 S&P 500 companies that reported results since Jan. 9, 129 posted per-share earnings that beat projections, Bloomberg data show.
“We’re moving closer to relief from the European problem becoming one of catastrophe,” Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion, said in a telephone interview. “The market is recognizing that European officials are working towards solutions. As more of that fades, what takes prominence is the fact that the corporate picture remains pretty decent.”
Exxon Mobil dropped 2.1 percent to $83.66. Revenue rose 16 percent to $121.6 billion during the quarter, less than the $124.4 billion average of five analysts’ estimates compiled by Bloomberg.
UPS Falls
UPS lost 1.1 percent to $75.34. The company reported sales of $14.17 billion, missing the average analyst estimate in a Bloomberg survey of $14.45 billion.
ADM sank 5 percent to $28.24. The company, led by Chairman and Chief Executive Officer Patricia Woertz, has missed analysts’ estimates for three straight quarters. Operating profit at the agricultural-services unit, the company’s largest segment by revenue in fiscal 2011, fell 63 percent to $158 million after U.S. grain exports declined because of a smaller domestic crop and “adequate” global supplies, ADM said.
RadioShack Corp. tumbled 30 percent to $7.18 after the consumer-electronics retailer suspended share repurchases and reported preliminary fourth-quarter earnings that trailed analysts’ estimates.
Financial shares gained the most among 10 S&P 500 industry groups, advancing 0.4 percent. Goldman Sachs added 1.9 percent to $111.86. Morgan Stanley rose 1.8 percent to $18.53.
Best Start
U.S. financial stocks are hardly a bargain as they wrap up their best start to a year since the 1990s, according to Brian Belski, Oppenheimer & Co.’s chief investment strategist.
“Longer-term investors should not be fooled by what appear to be attractive valuations for financials,” Belski wrote in a Jan. 27 report. Anyone looking ahead three to five years ought to invest less money in these stocks than their S&P 500 weight would suggest, he added. They account for about 14 percent of the index’s value.
The financial index was valued at 12.4 times earnings yesterday. The ratio was about twice as high two years ago, according to data compiled by Bloomberg.
“Most of these companies operate in a ‘whole new world’ of increased scrutiny and regulation,” wrote Belski, based in New York. He added that more restrictive capital requirements, imposed as part of that shift, will hurt profitability.
This month’s gains in the shares resulted largely from buying to capitalize on a rising stock market, he wrote. S&P’s industry indicator swung by an average of 1.4 percent for every 1 percent move in the S&P 500 during the past 12 months, based on Bloomberg’s data. This reading, known as beta, was higher for financials than for any of the index’s nine other main industry groups.
–With assistance from David Wilson in New York. Editors: Jeff Sutherland, Michael P. Regan
To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
