U.S. stocks fell, after the Dow Jones Industrial Average reached record highs last week, as a levy imposed by euro-area leaders on Cypriot bank deposits sparked concern the region’s debt crisis is intensifying.
Eight of 10 groups in the S&P 500 fell as financial shares dropped the most, sinking 0.8%. Schlumberger Ltd. retreated 3.3% after saying North American activity was below estimates. Carnival Corp. declined 2.5% amid analyst downgrades. Apple Inc. and Hewlett-Packard Co. each climbed 2.6% to lead a rebound in technology shares.
The Standard & Poor’s 500 Index slid 0.4% to 1,554.61 at 3:23 p.m. in New York, paring an earlier 1% drop. The Dow declined 42.92 points, or 0.3%, to 14,471.19. today. Trading in S&P 500 stocks was 11% below the 30-day average at this time of day.
“We’ve had a wonderful market and somewhat carefree attitude,” Richard Sichel, who oversees about $1.8 billion as chief investment officer at Philadelphia Trust Co., said in a phone interview. “Now here’s sort of a dose of reality, and although it’s such a small country, but what they’re doing sort of sends shivers through investors and other countries.”
Euro-region finance ministers forced depositors in Cypriot banks to share in the cost of rescuing the island nation, reducing the cost of the bailout by 5.8 billion euros ($7.5 billion) to 10 billion euros. The country accounts for less than half a% of the 17-nation euro-area economy.
A parliamentary vote on the levy due to take place today was postponed. Equity markets are closed in Cyprus and Greece for a scheduled bank holiday today. Cypriot banks will remain closed tomorrow and March 20, a government official said, asking not to be identified.
European policy makers signaled flexibility on the application of an unprecedented bank tax in Cyprus, seeking to overcome outrage that threatens to derail the nation’s bailout.
“We’re starting to see some talk that they may back away from this a little bit and that may have helped the market,” James Gaul, a portfolio manager at Boston Advisors LLC, which oversees about $2.4 billion in assets, said in a telephone interview. “The big question is if they’re going to continue with this so-called wealth tax, and how long it takes the market to realize this is a really bad thing.”
The bull market in U.S. equities entered its fifth year this month as the S&P 500 more than doubled from its bottom in 2009, driven by better-than-expected corporate earnings and three rounds of bond purchases by the Federal Reserve. The S&P 500 rose to within two points of its 2007 record last week while the Dow reached an all-time high.
The Federal Open Market Committee is scheduled to begin a two-day meeting tomorrow. The committee in December agreed to link its zero-rate policy to thresholds for unemployment and inflation so investors and households know what conditions will prompt the Fed to consider raising its record-low interest rate.
Financial and commodities companies fell the most among 10 S&P 500 groups, losing at least 0.6%. The KBW Bank Index slid 0.8% as 22 of its 24 members retreated. Morgan Stanley tumbled 2.3% to $23.06 while Citigroup Inc. sank 2.1% to $46.29.
Goldman Sachs Group Inc. slumped 1.6% to $152.43. The U.S. Supreme Court rejected an appeal by the trading firm in an investor lawsuit over mortgage-backed securities whose value plummeted during the 2008 financial crisis.
Schlumberger fell 3.3% to $76.75. The world’s largest oilfield-services provider said North American customers are re-activating fewer-than-estimated rigs during the first quarter. Pricing is under pressure in the region, the company said in a conference hosted by Howard Weil Inc.
Carnival slid 2.5% to $34.08. At least three analysts cut their ratings on the cruise operator. The company, beset by mishaps at sea this year, last week reduced its annual earnings forecast to reflect costs from an engine fire that crippled the Carnival Triumph in February.
J.C. Penney Co. rallied 7.1%, the most in the S&P 500, to $16.58. The department store chain could turn its top 300 stores into a real estate investment trust-like entity that would sublet space to other brands, ISI Group analyst Omar Saad said in a note.
Apple added 3% to $456.73. The company is poised to boost its dividend by more than a half, according to analysts surveyed by Bloomberg, providing investors hit by a share slump with one of the highest yields in the U.S. technology industry.
Chief Executive Officer Tim Cook, who a year ago this month reinstated a dividend and announced a $10 billion buyback, faces mounting pressure to take bolder steps to pay out more of Apple’s $137.1 billion in cash and investments. Investors including David Einhorn’s Greenlight Capital Inc. are pushing for more money as growth slows and competition from rivals such as Samsung Electronics Co. intensifies.
“The accumulation of cash has become excessive,” Brian White, an analyst at New York-based Topeka Capital Markets Inc., said in an interview. He rates the shares a buy, with an $888 price target. “It doesn’t matter which bearish scenario you forecast, they’re never going to need this much cash.”
Hewlett-Packard gained 2.6% to $22.75, rising the most in the Dow. Morgan Stanley raised its rating on the stock to overweight, citing potential for the company to return more cash to investors. Hewlett-Packard may generate free cash flow of about $6.7 billion in the 2013 fiscal year, almost 35% more than the company’s $5 billion forecast, according to Katy Huberty, an analyst at Morgan Stanley.
Phone stocks had the biggest gain among S&P 500 groups, adding 0.3%. Verizon Communications Inc. climbed 1.7% to $48.81 as Citigroup lifted its rating to buy from neutral, saying a buyout of Vodafone Group Plc’s stake in their wireless venture would add to earnings.
The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, surged 15% to 12.98, after dropping 10% last week to its lowest level since February 2007. The gauge, known as the VIX, is down 28% this year.
Traders are placing a record number of bets that U.S. stock-market swings will increase after a six-year low in the VIX fueled speculation volatility has fallen too far, too fast.
The shares outstanding for the iPath S&P 500 VIX Short-Term Futures ETN, the most-active security that tracks changes in VIX futures, has climbed 95% to an all-time high of 61.9 million this year, data compiled by Bloomberg show. The total for the ProShares Ultra VIX Short-Term Futures is up 10-fold to 39.9 million last week, data compiled by Bloomberg show.
“If you look at the economy and all the political issues, then there are a lot of headwinds out there. And yet the market just continues to go,” Frank Braddock, senior portfolio manager with the Braddock Group of JHS Capital Advisors, said by phone from Columbia, South Carolina, on March 15. JHS oversees about $3.4 billion. “The fear I have is that if this psychology of wanting to push the market higher changes, then we’ll see a pretty sharp pullback and a spike in volatility.”