Fears of a Rally Too Far Pull Down Stocks
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U.S. stocks slumped the most in two months last week, as financials shares were hit by concerns that banks have rallied more than their earnings prospects warrant and energy producers were dragged down by lower oil prices.
Morgan Stanley lost 6.3 percent as Bank of America cut its rating, citing the 84 percent run-up in its shares this year up to last week. American International Group plunged 20 percent on Sanford C. Bernstein & Co.'s recommendation to sell the shares, which surged 245 percent in August. Exxon Mobil fell as oil slid 6.5 percent after China said it would implement more rigorous capital rules for banks, spurring speculation its growth will cool.
The Standard & Poor's 500-stock index fell 1.2 percent, to 1016.40, paring its 2009 gain to 13 percent. The Dow Jones industrial average dropped 102.93 points, or 1.1 percent, to 9441.27. The Nasdaq composite index lost 0.5 percent, to 2018.78. Markets are closed Monday for the Labor Day holiday.
"At some point you need a gut check on some of those companies like AIG that people are just buying because they're going up," said Scott R. Tapley, who helps oversee $2.5 billion at 1st Source Corp. Investment Advisors in South Bend, Ind. "At some point you have to pause and wait for confirmation of real earnings."
Financial shares, which have more than doubled in the past six months, lost 3.6 percent for the biggest retreat among 10 industry groups in the S&P 500. Energy companies fell 2 percent for the second-biggest loss.
Consumer-staples makers were the only group that advanced. They gained 0.6 percent, led by Costco Wholesale's biggest daily rally in 10 months.
The Treasury will auction $29 billion of three-month bills and $29 billion of six-month bills Sept. 8. They yielded 0.12 percent and 0.22 percent, respectively, in when-issued trading. One-month bills will be sold Sept. 9.
-- Bloomberg News
