Sept. 14 (Bloomberg) -- U.S. stock futures dropped after the biggest weekly gain in the Standard & Poor’s 500 Index since July left the gauge valued at the most expensive level relative to earnings in more than five years.
Citigroup Inc. and American International Group Inc. slid more than 1.5 percent as Nobel Prize-winning economist Joseph Stiglitz said the U.S. has failed to fix the underlying problems of its banking system following the collapse of Lehman Brothers Holdings Inc. a year ago. Alcoa Inc. declined 2.6 percent as HSBC Holdings Plc analysts rated the shares “underweight” and metal prices retreated.
Futures on the S&P 500 expiring in December slipped 0.7 percent to 1,029.8 at 9:08 a.m. in New York, after the index rose 2.6 percent last week. Dow Jones Industrial Average futures fell 0.6 percent to 9,472. Nasdaq-100 Index futures lost 0.7 percent to 1,672.5. Stocks in Europe and Asia also retreated.
“As investors ratchet up their expectations for the future, the hurdle becomes harder,” said Tristan Hanson, manager of asset allocation and strategy at Ashburton Ltd. His team this month reduced allocation of equities, mostly by cutting holdings in Asian shares. “We are not bearish on the market, we are still optimistic on a 12-month view, it is just a short-term precaution. A correction seems plausible.”
The S&P 500 has rebounded 54 percent from a 12-year low on March 9 amid signs the worst of an economic recession is past and as companies beat analysts’ earnings estimates.
Valuations
The rally pushed valuations in the U.S. benchmark index to about 19.3 times its companies’ reported earnings, the highest level since June 2004, according to weekly data compiled by Bloomberg.
The U.S. recovery may be the slowest since World War II to regain all the ground lost during the recession, even if economists’ more optimistic forecasts for expansion turn out to be right.
The slump this time was so deep, said JPMorgan Chase & Co. chief economist Bruce Kasman, that the 3.5 percent average quarterly growth rate he sees in the next year won’t be enough to bring gross domestic product back to its $13.42 trillion pre- crisis peak. That’s in contrast with the last 10 recoveries, when GDP returned to its previous levels within 12 months.
Citigroup, the U.S. bank rescued by $45 billion in taxpayer funds, dropped 1.5 percent to $4.54. AIG lost 1.7 percent to $36.90.
‘Problems Are Worse’
“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview in Paris yesterday. “The problems are worse than they were in 2007 before the crisis.”
A measure of financial shares in the S&P 500 has jumped 139 percent since reaching a low for the year on March 6, paring the drop since Lehman collapsed on Sept. 15 to 31 percent. Banks worldwide have reported $1.62 trillion in losses since the start of 2007 as the credit crisis erupted, Bloomberg data show.
Alcoa, the largest U.S. producer of aluminum, slid 2.6 percent to $12.65. The stock was rated new “underweight” at HSBC, which said the shares look expensive relative to the bank’s estimates for aluminum prices. Alcoa shares have rallied 149 percent since March 6.
Commodity prices also slumped, with copper falling for a fourth day and oil declining below $69 a barrel.
Exxon Mobil Corp., the largest U.S. oil company, slipped 0.9 percent to $69.35, while ConocoPhillips declined 0.6 percent to $45.69.
Turning Defensive
Fund managers at Rothschild & Cie Gestion, BlackRock Inc. and OppenheimerFunds Inc. are moving money out of stocks whose profits are more tied to economic growth and into so-called defensive shares including phone companies, drugmakers and food producers. The asset managers are betting that the economic recovery won’t be strong enough to support gains in so-called cyclical stocks.
Sprint Nextel Corp. soared 21 percent to $4.57. Germany’s Deutsche Telekom AG has asked adviser Deutsche Bank AG to study a potential takeover bid for mobile-phone operator Sprint, the U.K.’s Sunday Telegraph reported, citing unidentified people.
Deutsche Telekom spokeswoman Anna Bischof declined to comment on the report today. Deutsche Bank spokesman Michael Lermer and Sprint spokesman James Fisher have also declined to comment on the newspaper article.
China announced dumping and subsidy probes of chicken and auto products from the U.S., two days after President Barack Obama imposed tariffs on tires from the Asian nation. Chinese industries complain that they’re being hurt by “unfair trade practices,” the nation’s Ministry of Commerce said on its Web site yesterday. The dumping investigation relates to poultry alone, a spokesman said in Beijing today. The ministry didn’t specify the value of imports of the products.
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