U.S. stocks retreated, sending the Standard & Poor’s 500 Index to the lowest level since December, amid concern that Japan’s nuclear crisis will worsen.
The iShares MSCI Japan Index Fund (EWJ) tracking 323 securities slumped 3.7 percent. KB Home and D.R. Horton Inc. slid more than 2.2 percent, pacing declines in homebuilders, as housing starts plunged to the lowest level in almost a year. International Business Machines Corp. (IBM) fell 3.8 percent as Sanford C. Bernstein & Co. cut its rating on the shares. Apple Inc. (AAPL) sank 4.5 percent after JMP Securities LLC downgraded the maker of iPads.
The S&P 500 fell 2 percent to 1,256.88 at 4 p.m. in New York. The Dow Jones Industrial Average slid 242.12 points, or 2 percent, to 11,613.30, the biggest drop since August. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, rose 21 percent to 29.40, the highest level since July.
“The risks have risen and you have to be mindful of them,” said David Joy, chief market strategist at Columbia Management in Boston, which oversees $350 billion. “It’s difficult to nail down what’s accurate information coming out of Japan and what isn’t. There’s concern that the problems at the nuclear plants are far more serious than the problems associated with the earthquake. In addition to that, there’s ongoing housing weakness in the U.S. and a fear premium built into the oil market. That’s why you have to hedge your bets.”
Emergency Meeting
The United Nations’ nuclear agency will call an emergency meeting to discuss the crisis in Japan as a breach at the stricken Fukushima Dai-Ichi plant increased the risk of a radioactive leak. IAEA Chief Yukiya Amano is flying to Tokyo to talk with authorities today and will return for the meeting as soon as possible, he told reporters in Vienna. It will be the first extraordinary meeting of the agency’s 35-member board since his election to succeed Mohamed ElBaradei two years ago.
The S&P 500 pared its retreat after the Associated Press reported Tokyo Electric Power Co. says a power line that may solve the nuclear crisis at its facility is almost ready. Tokyo Electric Power has not determined the timing for when a new power line can restore electricity to a tsunami-crippled nuclear power plant, Sakio Iwamoto, a spokesman, told Bloomberg News. Iwamoto said he couldn’t confirm how much progress has been made in installing the new power line.
The S&P 500 has slumped 3.6 percent over the last three days after a 9-magnitude earthquake, the biggest in Japan’s history, struck the northeast part of the country on March 11.
‘Armageddon Scenario’
“Investors have priced in an Armageddon scenario,” said Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $53 billion. “If we find that there’s stabilization coming into those nuclear facilities in Japan, investors will turn around and look at the alternatives. People are wary, but at the same time there’s a notion that the economic basis continues to show strength.”
Japan’s earthquake should have a “limited” impact on U.S. growth, said Alec Phillips, a Goldman Sachs Group Inc. economist based in Washington. Disruptions to Japanese output could shift demand to U.S. products, according to Phillips.
The iShares MSCI Japan Index Fund declined 3.7 percent to $9.66 in U.S. trading, dropping to the lowest level since September. Qualcomm Inc. (QCOM), the biggest maker of mobile-phone chips, and Coach Inc. (COH), the largest U.S. maker of luxury leather handbags, slumped at least 2.6 percent amid concern Japanese sales will suffer.
Housing Starts
Earlier today, equity futures fell after the Commerce Department said housing starts dropped 22.5 percent to a 479,000 annual rate. The decline from January was the biggest since March 1984. The median forecast in a Bloomberg News survey called for a 566,000 rate. Building permits, a proxy for future construction, fell 8.2 percent to a 517,000 annual pace.
The producer-price index climbed 1.6 percent from the prior month, the most since June 2009, Labor Department figures showed today in Washington. The median projection in a Bloomberg News survey was for a 0.7 percent gain. The so-called core measure, which excludes volatile food and energy costs increased 0.2 percent, matching forecasts.
A gauge of homebuilders in S&P indexes declined 2.3 percent, as 11 of the 12 stocks retreated. KB Home (KBH) slumped 3.8 percent to $12.71. D.R. Horton sank 2.3 percent to $11.70.
IBM declined 3.8 percent to $153. The computer services company was cut to “market perform” from “outperform” at Sanford C. Bernstein. IBM, which makes up 10 percent of the gauge, contributed 45.60 points to the index’s slump.
Apple fell 4.5 percent, the most since June, to $330.01. The world’s most valuable technology company was cut to "market perform’’ from “market outperform” at JMP Securities. Alex Gauna, an analyst at the brokerage, citing risks related to manufacturing partner Foxconn Technology Corp.
Pessimism Rises
Pessimism on U.S. stocks rose for the third straight week, according to Investor Intelligence’s analysis of investment newsletters between March 9 and yesterday. About 22 percent of writers were bearish on U.S. stocks, up from 21 percent last week, according to the New Rochelle, New York-based firm, which has examined forecasts in newsletters since 1963. About 52 percent of investors were bullish, while 26 percent anticipate a correction, or 10 percent decline, in the market.
Barclays Plc’s Barry Knapp forecast that the U.S. stock market will dip in the third to fourth quarter this year, once the Federal Reserve starts to unwind its stimulus program.
The Fed is “likely to keep the balance sheet static after they stop expanding in June,” said Knapp, head of U.S. equity strategy at Barclays Capital, in an interview today on “Bloomberg Surveillance” with Tom Keene. “In the September to November time frame, they’ll allow it start contracting, and that will be the necessary condition to trigger an equity market correction.”
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