In the U.S.: U.S. Stock Futures Fall Before European Officials Meets

8 October 2012

Spain, Greece, Chavez victory, earnings season…a lot to digest during Columbus Day.

U.S. stock futures fell, following last week’s rally in benchmark indexes, as European finance ministers prepared to meet to discuss the region’s debt crisis.

Bank of America Corp. (BAC) and Monsanto Co. (MON) each retreated 1.4 percent to pace declines among the biggest companies. KeyCorp (KEY), Ohio’s second-largest bank, decreased 1.2 percent after Deutsche Bank AG reduced its recommendation for the shares. Netflix Inc. (NFLX), the world’s largest video-subscription service, advanced 6.4 percent after being raised at Morgan Stanley.

Standard & Poor’s 500 Index futures expiring in December lost 0.4 percent to 1,450.10 at 8:29 a.m. New York time. Dow Jones Industrial Average futures slid 47 points, or 0.4 percent, to 13,489. The number of shares changing hands in Stoxx Europe 600 Index’s companies was 28 percent above the 30-day average at this time of day, according to data compiled by Bloomberg.

“Eyes are on the pressure the Spanish government will likely get to stop playing games on the day the Europeans are supposed to roll out their new bailout toy,” Peter Boockvar, equity strategist at Miller Tabak & Co. in New York, wrote. “Greece will be the other story as it seems they will get further leeway from their sugar daddies who will never get paid back all of what’s owed to them but for now will pretend to.”

European finance ministers meet in Luxembourg today to discuss Spain’s overhaul effort and closer banking cooperation, while German Chancellor Angela Merkel visits Greece tomorrow for the first time since the crisis erupted. The World Bank said policy makers in Asia’s emerging economies have room to provide more fiscal stimulus as China’s slowdown drags the region’s growth to an estimated 11-year low in 2012.

Earnings Season

Equities rose last week amid better-than-estimated economic reports and after the European Central Bank said it stands ready to buy bonds. Alcoa Inc. (AA) unofficially starts the earnings season with the release of its third-quarter numbers tomorrow. The streak of 11 quarters of profit growth in S&P 500 companies is projected to end as analysts estimate a decline of 1.7 percent in earnings, according to data compiled by Bloomberg.

Some of the largest companies retreated today. Bank of America lost 1.4 percent to $9.19. Monsanto, the world’s largest seed company, retreated 1.4 percent to $89.91.

KeyCorp decreased 1.2 percent to $8.77. The bank was downgraded to hold from buy at Deutsche Bank. Netflix rallied 6.4 percent to $70.79 after the company was raised to overweight from equalweight at Morgan Stanley.

Bank Earnings

As third-quarter earnings season begins, the companies analysts are most bullish about are the ones whose stock prices are farthest below their highs — banks.

While financial institutions in the S&P 500 climbed 24 percent in 2012 for the biggest rally in nine years, they remain 58 percent below the record of February 2007, according to data compiled by Bloomberg. Signs of a housing recovery prompted Wall Street firms to raise estimates for profit growth to 21 percent for the third quarter and 32 percent in the fourth, the most of 10 S&P 500 industries.

Bulls say banks will continue to rally as Federal Reserve stimulus boosts earnings and helps companies from BB&T Corp. to KeyCorp and Wells Fargo & Co. rebound from the 84 percent drop during the financial crisis. Bears say gains will be limited to traditional lenders and increased regulation will drag down firms that depend on trading and underwriting for revenue.

“As transactional volume increases for consumer, housing and business credit, there is an opportunity to increase earnings” among regional lenders, said Michael Shaoul, chairman of New York-based Marketfield Asset Management, which oversees $3 billion. Firms outside of the “purer banking model” face too much regulation, he said in an Oct. 3 e-mail.


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