Most U.S. stocks fall on World Bank forecasts amid earnings

January 16, 2013 10:25 AM

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 Most U.S. stocks fell, following yesterday’s advance, as economic concern after the World Bank downgraded global growth forecasts tempered a rally in Apple Inc. and investors watched corporate earnings.

Apple, which slid below $500 a share yesterday for the first time in 11 months, rallied 4.2 percent to halt a three-day decline.

More than three stocks fell for every two advancing on U.S. exchanges as of 4 p.m. in New York. The Standard & Poor’s 500 Index advanced less than 0.1 percent to 1,472.57. The Dow Jones Industrial Average retreated 23.66 points, or 0.2 percent, to 13,511.23 today.

“The cuts in growth forecasts are reminders that there’s still work to be done,” said Brad Sorensen, director of market and sector analysis at San Francisco-based Charles Schwab Corp. His firm has $1.92 trillion in client assets. “In the U.S., it’s early to talk about the earnings season, but so far we’re relatively pleased with what we’ve seen. We’ve had a good start to the year in stocks. There’s very little doubt that there’s quite a bit of money on the sidelines that could provide a nice boost higher.”

The World Bank cut its global growth forecast for this year as austerity measures, high unemployment and low business confidence weigh on economies in developed nations. German Chancellor Angela Merkel’s government cut its growth forecast for Europe’s biggest economy. Luxembourg Prime Minister Jean- Claude Juncker said the strength of the euro poses a threat to the region’s economy.

Industrial Production

The U.S. economy picked up across much of the country last month, boosted by auto and home sales, even as the outlook for unemployment showed few signs of improvement, the Federal Reserve said. Industrial production in the U.S. climbed for a second month in December as demand picked up for business equipment, showing factories expanded even as lawmakers battled over the federal budget.

Besides JPMorgan and Goldman Sachs, nine other companies in the S&P 500 are scheduled to report results today. Almost 75 percent of the 39 S&P 500 companies which reported quarterly results beat analysts forecasts. Fourth-quarter profits grew 2.5 percent, according to analysts’ estimates compiled by Bloomberg. That would be the second-slowest quarterly growth since 2009, the data show.

Index’s Valuation

The S&P 500 has risen 3.2 percent so far this year, extending 2012’s 13 percent surge. Yet the benchmark gauge is trading at 14.8 times reported earnings, compared with an average of 16.46 since 1954, according to data compiled by Bloomberg.

“On the positive side of the ledger we’ve got at least what I consider to be undemanding valuations for stocks in general,” said Norm Conley, chief executive officer at St. Louis-based J.A. Glynn & Co, which manages about $975 million. “We’ve got earnings season kicking off here and so far no huge bad surprise, so that is an incremental positive.”

The Dow is better positioned to set a record now that its transportation-stock counterpart has done so, according to Richard Moroney, editor of the Dow Theory Forecasts newsletter. The Dow Jones Transportation Average has led the Dow industrials throughout the rally which started in March 2009. Yesterday the Dow transports closed at 5,639.64, an all-time high. The average had climbed 6.3 percent for the year, its best performance through Jan. 15 since 1987.

“It’s a legitimate move,” Moroney, who serves as the chief investment officer at Horizon Investment Services LLC as well as the newsletter’s editor, said yesterday in a telephone interview. “I take it as a positive.”

All 20 companies in the Dow transports had gains for the year as of yesterday. Delta Air Lines Inc., the world’s second- largest airline, set the pace by rising 15 percent. Most beat the Dow industrials’ 3.3 percent advance for 2013 as well.

Fourth-quarter earnings reports will largely determine whether the industrials reach a record any time soon, according to Moroney. The average would have to advance 4.7 percent to surpass its peak of 14,164.53 in October 2007. It’s 0.6 percent away from beating last year’s high.

Bloomberg News

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