U.S. Stocks Fall as Data Cast Doubt on Global Economic Recovery
August 16, 2010, 9:40 AM EDT
By Rita Nazareth
Aug. 16 (Bloomberg) -- U.S. stocks fell, with the Standard & Poor’s 500 Index extending last week’s slide, after weaker- than-forecast reports on New York manufacturing and Japan’s economy added to concern the global recovery is slowing.
Google Inc. fell 1 percent. Corinthian Colleges Inc. slumped 9.8 percent as Deutsche Bank AG downgraded the shares. Washington Post Co. sank 12 percent after the newspaper publisher said a significant number of its Kaplan schools may miss Title IV funding under new government rules. Chesapeake Energy Corp., the second-largest U.S. natural gas producer, rose 0.2 percent after being raised to “outperform” at BMO Capital Markets.
The S&P 500 dropped 0.6 percent to 1,072.3 at 9:35 a.m. in New York. The Dow Jones Industrial Average retreated 57.75 points, or 0.6 percent, to 10,245.40.
“People are wary because of weak economic numbers,” said Peter Jankovskis, who helps manage about $2.2 billion as co- chief investment officer at Oakbrook Investments in Lisle, Illinois. “Japan’s figures got investors concerned. Over here, corporate earnings have been strong. However, we’ll have a fair amount of economic data this week and investors will be waiting to see what those numbers will show.”
About $1.9 trillion has been wiped from the value of global equities since the Federal Reserve said Aug. 10 that the pace of economic recovery will probably be “more modest” than forecast. The 4.3 percent retreat in the S&P 500 from Aug. 9 through Aug. 13 threatened the index’s rebound from a 10-month low on July 2.
Economic Reports
“The market is still nervous and optimism from the second- quarter earnings reports can quickly be diminished by other factors,” said Christian Falkner, an analyst at Alpha Wertpapierhandels AG in Frankfurt. “I don’t see one single event, but a combination of bad economic figures and the statements from the Federal Reserve and the Bank of England on economic growth last week.”
Corinthian Tumbles
Corinthian Colleges sank 9.8 percent to $6.01 after BMO Capital Markets downgraded the stock to “market perform” from “outperform.”
Colleges owned by Corinthian Colleges, Career Education Corp. and Washington Post Co. have campuses where fewer than 20 percent of federal student loans are being repaid, according to the U.S. Department of Education, which wants to use the data to determine whether programs can remain eligible for aid.
Nationally, for-profit colleges have a 36 percent student- loan repayment rate, compared with 54 percent at public universities and 56 percent at private nonprofits, according to an analysis of the Education Department data by the Institute for College Access & Success, an Oakland, California nonprofit research and advocacy group.
Washington Post shares declined 12 percent to $300.89.
Chesapeake Energy
Chesapeake Energy gained 0.2 percent to $20.82, after being raised to “outperform” from “market perform” at BMO Capital Markets. The 12-month share-price estimate is $30.
3Par Inc. surged 85 percent to $17.88. Dell Inc. agreed to buy the maker of hardware and software for reducing information- storage requirements for about $1.15 billion. 3Par investors will get $18 a share in cash. That’s almost double the stock’s closing price of $9.65 on Aug. 13.
Investors are moving more money than ever before out of stocks and into bonds, widening a valuation gap and convincing the biggest money managers that now is the time to buy equities.
About $33 billion flowed out of funds owning U.S. shares this year even as the economic recovery sent free cash flow for American companies excluding banks to 6.8 percent of their market value. That’s the highest level compared with corporate debt yields since 1960, Credit Suisse Group AG data show. About $185 billion was sent to bond funds through July 31, the most on record, according to the Investment Company Institute.
“People would rather overpay for bonds than underpay for stocks,” said David Kelly, who helps oversee $445 billion as chief market strategist for JPMorgan Funds in New York. “It’s a reflection of an extraordinary prejudice. If people are at an emotional extreme, it means that at some point there’s got to be reallocation of cash away from the bond market toward the stock market. Ultimately, it’s bullish.”
--Editors: Michael P. Regan, Joanna Ossinger
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. |
