a-12-year-low

By Whitney Kisling Aug. 11 (Bloomberg) — U.S. stocks dropped the most in a month, led by financials, after JPMorgan Chase & Co. said credit losses may overwhelm capital at MBIA Inc. and analyst Dick Bove said bank earnings won’t improve in the second half of the year. MBIA, the biggest bond insurer, tumbled 13 percent after JPMorgan cut the company to “underweight.” All but one of 24 shares in the KBW Bank Index fell as Bove, analyst at Rochdale Securities, said banks will probably retreat. CIT Group Inc., the commercial lender trying to avoid a collapse, slid 19 percent after delaying its earnings report. Sprint Nextel Corp. and Yum! Brands Inc. declined on analyst downgrades. The Standard & Poor’s 500 Index lost 1.3 percent to 994.35 at 4:07 p.m. in New York, its worst drop since July 7. The Dow Jones Industrial Average sank 96.5 points, or 1 percent, to 9,241.45. About four stocks fell for each that rose on the New York Stock Exchange. “Most companies have beat earnings estimates, but they did it through cost savings,” said Alan Gayle , the Richmond, Virginia-based director of asset allocation at Ridgeworth Investments, which manages $60 billion. “Market expectations are being raised. The pressure is going to be on now that the consensus is we’re beginning a recovery.” ‘Fibonacci Retracement’ The S&P 500 has fallen for two days after it erased 38.2 percent of its tumble from a record in October 2007, a “ Fibonacci retracement ” to forecasters who base predictions on price charts. Technical analysts argue that stocks often gain momentum or reverse when they reach levels on the Fibonacci sequence, a numerical series based on dimensions found in nature. A 49 percent rally from a 12-year low on March 9 left the S&P 500 trading at 18.6 times the profits of its companies on Aug. 7, the highest valuation since 2004, according to Bloomberg data. Earnings per share topped analysts’ estimates by 10 percent on average for the 450 companies in the S&P 500 that released results since June 17, according to data compiled by Bloomberg. Profits slumped 30 percent in the period, a record eighth straight quarter of falling earnings, and sales slid 16 percent. MBIA declined 13 percent to $5.39, the biggest drop since April 20, after JPMorgan cut the shares from “neutral” and said there is “little value” in the company’s equity because mortgage and credit losses eventually may erase its capital. A group of S&P 500 financial shares lost 3.5 percent, the steepest decline since July 2 and the biggest today among 10 industries. American International Group Inc., the insurer rescued by the government, slipped 13 percent to $24.92. CIT said it is delaying a quarterly report as it works with bondholders on a restructuring plan. The shares dropped 19 percent to $1.20. Running on ‘Fumes’ The KBW Bank Index fell 4.4 percent, the most in almost three weeks, after Bove said bank shares have been rallying on “fumes,” not fundamentals. The index more than doubled from its low in March. Earnings won’t improve in the third and fourth quarters, Bove wrote in a note, and he forecast a short-term decline in their shares. Wells Fargo & Co . lost 6.1 percent to $26.89 and BB&T Corp. dropped 2.8 percent to $25.18. Bank of America Corp. fell the most on the Dow, dropping 5 percent to $15.85. The Charlotte, North Carolina-based bank has more than quadrupled since March 9. “The rational investor would step away from psychology at this point and take some profits,” Bove said in the note. Loan Losses Regional banks fell 4.2 percent as a group, led by Zions Bancorporation, after the Congressional Oversight Panel said today in a monthly report that smaller banks may need $12 billion to $14 billion in additional capital for troubled loans still on their books. The panel said the biggest U.S. banks appear prepared to handle more loan losses. Equities fell even after productivity of U.S. workers grew in the second quarter at the fastest pace in almost six years as employers squeezed more out of remaining staff to bolster profits. Productivity rose at an annual 6.4 percent pace, more than forecast, after a 0.3 percent gain the prior three months, Labor Department data showed. Labor costs fell 5.8 percent, the most in eight years. A separate government report showed inventories at U.S. wholesalers fell in June for a tenth straight month as a gain in sales helped distributors move out more of their excess supply. The Federal Open Market Committee will release a statement tomorrow following a two-day meeting to discuss interest rates and its asset-purchase program. The key lending rate will remain between zero and 0.25 percent, according to all 45 economists surveyed by Bloomberg. VIX Jumps The benchmark index for U.S. stock options jumped the most in two weeks today. The VIX, as the Chicago Board Options Exchange Volatility Index is known, climbed 4 percent to 25.99. The index, which measures the cost of using options as insurance against declines in the S&P 500 , is down from a record 80.86 in November yet above its 20.22 average over its 19-year history. Sprint Nextel lost 4.3 percent to $3.55 as Piper Jaffray Cos. cut its recommendation to “underweight” from “neutral.” Sprint has fallen for five straight days, the longest streak since December. Yum! Brands , the owner of the Taco Bell restaurant chain, dropped 3.8 percent to $35.13 after its shares were cut to “neutral” from “buy” at UBS AG, which cited “sluggish” U.S. sales. Crude’s Fourth Straight Decline Exxon Mobil Corp. declined 0.9 percent to $68.13 as the price of crude oil tumbled for a fourth straight day. The Organization of Petroleum Exporting Countries raised its 2010 forecast for supply from outside the group. Crude for September delivery fell 1.6 percent to $69.45 a barrel. A group of energy companies slid 1.7 percent, with Chevron Corp. losing 1.9 percent to $67.94, and ConocoPhillips dropping 1.4 percent to $43.62. Fluor Corp., the largest publicly traded U.S. engineering firm, dragged a group of industrial shares down 1.3 percent. Fluor’s second-quarter profit fell 19 percent from a year earlier and sales trailed analysts’ estimates as oil and gas work slowed. Fluor shares slipped 6.1 percent to $53.96, while General Electric Co. lost 4 percent to $13.99. Caterpillar Inc., the biggest maker of construction equipment, dropped 1.9 percent to $46.28. The S&P 500 must rally 57 percent to surpass its all-time high of 1,565.15 set on Oct. 9, 2007. Before November, it had remained above 1,000 for five years. The gauge’s 49 percent rally from a 12-year low on March 9 through last week was the steepest surge since the Great Depression. To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net .