U.S. stocks drop on bank margins as crops lead commodities lower

U.S. stocks erased an early rally as Wells Fargo & Co.’s shrinking profit margin and weakness in European markets overshadowed a jump in consumer confidence to the highest level since the recession started. Commodities sank and the euro trimmed an early gain.

The Standard & Poor’s 500 Index slipped 0.3 percent to 1,428.60 at 4 p.m. in New York, after rising as much as 0.4 percent, and the Stoxx Europe 600 Index lost 0.5 percent. Ten- year Treasury yields fell one basis points to 1.66 percent. Corn, wheat and nickel led commodities lower. The euro was up 0.2 percent at $1.2958 after rising as much as 0.5 percent, while South Africa’s rand erased gains and tumbled 0.8 percent as the nation’s credit rating was cut to BBB at S&P.

Wells Fargo and JPMorgan Chase & Co. paced a retreat in banks as improving earnings were overshadowed by a drop in net- interest margin, a gauge of the profitability of lending. U.S. equities rallied earlier after the Thomson Reuters/University of Michigan preliminary October consumer sentiment index increased to 83.1 from 78.3 the prior month, topping the median estimate of 78 in a survey of economists.

“The headline macro numbers are getting diminished by the fact that you’re not seeing the follow-through on earnings, revenues, outlooks,” Matt McCormick, who helps oversee $7 billion at Cincinnati-based Bahl & Gaynor Inc., said in a telephone interview. “There was a lot of build-up and high expectations for Wells Fargo and JPMorgan and people were underwhelmed.”

Weekly Loss

The S&P 500 has lost more than 2 percent since climbing to an almost five-year high on Sept. 14 after the Federal Reserve announced plans to buy $40 billion of mortgage securities a month to stoke economic growth. The benchmark index lost 2.2 percent this week, its biggest drop since June 1.

Advanced Micro Devices Inc., the second-largest maker of processors for personal computers, plunged today after it cut its third-quarter revenue forecast, citing weak demand across all product lines in a challenging economic environment.

Bank Earnings

Banks in the S&P 500 led declines among 24 industries. JPMorgan, the largest U.S. bank by assets, slid even after posting net income rose 34 percent on gains from mortgages and trading. Wells Fargo tumbled as its shrinking lending margin overshadowed record earnings. First Horizon National Corp., Regions Financial Corp., SunTrust Banks Inc., Fifth Third Bancorp and PNC Financial Services Group Inc., all lenders that will report results this month, were among the largest declines in the S&P 500.

Signs of a housing recovery prompted Wall Street firms to raise estimates for profit growth at banks to 17 percent for the third quarter and 33 percent in the fourth. Companies in the S&P 500 are expected to snap a three-year streak of profit growth, with earnings last quarter projected to decrease 0.9 percent from the previous year, according to analyst estimates compiled by Bloomberg.

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