After 2-Month Rally, a Downer of a Week

Sunday, May 17, 2009

U.S. stocks last week fell the most since March, with the Standard & Poor's 500-stock index having reached the priciest level relative to earnings in seven months, companies from Ford to U.S. Bancorp selling shares and General Motors saying bankruptcy is probable.

Ford declined 12 percent and U.S. Bancorp 14 percent on concerns that they are diluting per-share earnings by raising money.

GM tumbled 32 percent, the S&P 500's steepest drop, as six executives sold off their stakes in the company.

The S&P 500 fell 5 percent last week, to 882.88. The Dow Jones industrial average lost 306.01 points, or 3.6 percent, to 8268.64. The Nasdaq composite index retreated 3.4 percent, to 1680.14. From March 9 to May 8, the S&P 500 surged 37 percent, the steepest two-month advance since the 1930s.

"Trees don't grow to the sky, and stocks don't move in a straight line," said Philip Orlando, chief equity strategist at Federated Investors in New York. "After a huge rally, you'd expect to see some consolidation."

The market's rally since March pushed the S&P 500's valuation to 15.1 times earnings on May 8, the highest since Oct. 3. The index is still up 31 percent from its 12-year low on March 9 as companies have posted better-than-estimated earnings and the government has said it would finance the purchase of as much as $1 trillion in illiquid assets from banks.

Profit at the 444 companies in the index that have reported since April 7 shrank 37 percent from a year earlier. But the results beat analysts' estimates by an average of 9.3 percent.

The Treasury will auction $31 billion of three-month bills and $29 billion of six-month bills tomorrow. They yielded 0.17 percent and 0.28 percent, respectively, in when-issued trading. One-month bills will be sold Tuesday.

-- Bloomberg News

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