U.S. Stocks Retreat as Confidence in Economic Recovery Wanes

By Craig Trudell

Feb. 27 (Bloomberg) -- U.S. stocks declined this week, trimming the Standard & Poor’s 500 Index’s rally for February, as unexpected declines in consumer confidence and equipment orders signaled the economic recovery may lose momentum.

American Express Co. and Caterpillar Inc. fell more than 2 percent after consumer confidence fell to the lowest level in 10 months and companies scaled back orders for durable goods, excluding transportation equipment. Coca-Cola Co. lost 5.4 percent as the world’s biggest soda maker agreed to buy Coca- Cola Enterprises Inc.’s North American bottler. H&R Block Inc. retreated 18 percent and Fluor Corp. lost 6.8 percent after saying 2010 earnings would miss forecasts.

The S&P 500 decreased 0.4 percent to 1,104.49, posting the first slump in three weeks and paring its advance for the month to 2.9 percent. The Dow Jones Industrial Average slipped 77.09 points, or 0.7 percent, to 10,325.26.

“Investors are coming to grips with the fact that maybe the economic recovery is not going to be as strong as they once thought,” said Greg Woodard, a strategist at Manning & Napier, which manages about $27 billion in Fairport, New York. “It’s going to be difficult for the consumer to pick up where monetary and fiscal stimulus left off.”

As the U.S. economy recovered from its biggest contraction since the 1930s, the S&P 500 rallied as much as 70 percent from the 12-year low it reached in March. The equity rally stalled a month ago and the S&P 500 lost as much as 8.1 percent amid concern that the labor market isn’t recovering fast enough and that European budget deficits will slow growth.

‘Nascent’ Recovery

Stocks rallied on Feb. 24, when Federal Reserve Chairman Ben S. Bernanke said the economy still requires low interest rates to spur demand given the “nascent” recovery.

The Conference Board’s measure of consumer confidence fell to 46 in February, the lowest level since April. Its measure of current conditions decreased to 19.4, a 27-year low. Orders for durable goods excluding transportation fell 0.6 percent, the most since August, and sales of new homes declined 11 percent to an annual pace of 309,000, the lowest level on record.

“The market is on hold until we get more convincing data that the recovery is still holding,” said Robert Baur, chief economist at Principal Global Investors, which oversees $215 billion in Des Moines, Iowa.

Bernanke said during two days of testimony before the U.S. House Financial Services committee that slack labor markets and low inflation will allow the Federal Open Market Committee to keep the benchmark lending rate, which has been in a range of zero to 0.25 percent for more than a year, low “for an extended period.”

Discount Rate Boost

The testimony followed the Federal Reserve Board’s decision to raise the cost of direct loans to banks last week by a quarter-point to 0.75 percent.

“We’re not going to see rates going up anytime soon,” Manning & Napier’s Woodard said. “There are lots of other steps the Fed can take prior to raising rates. That provides a nice backdrop for equities.”

American Express, which generated almost half its 2009 revenue from U.S. credit cards, slumped 2.2 percent to $38.19 this week. Caterpillar, the world’s largest maker of bulldozers and excavators, fell 2.1 percent to $57.05.

Coca-Cola lost 5.4 percent to $52.72. It agreed to pay $12.3 billion for the Coca-Cola Enterprises unit, more than six months after PepsiCo Inc. moved to bring its bottlers in-house to cut costs. Coca-Cola Enterprises surged 29 percent to $25.55.

Unemployment

H&R Block, the biggest U.S. tax preparer, plunged 18 percent to $17.28 after the company said unemployment curtailed tax returns and as TurboTax-owner Intuit Inc. won more business.

Fluor, the largest publicly traded U.S. construction company, dropped 6.8 percent to $42.80 after lowering its 2010 earnings forecast.

Monsanto Co. fell 9.1 percent to $70.65, helping send the S&P 500 Materials Index to a 2.4 percent for the week’s biggest drop among 10 industries. The world’s largest seed company said new genetically modified corn and soybeans it’s counting on to drive earnings this decade may be planted on fewer U.S. acres in 2010 than previously forecast.

First Solar Inc. retreated 8.8 percent to $105.75 after Chairman Michael J. Ahearn sold more than 40 percent of his holding in the solar-panel maker.

GameStop Corp. retreated 11 percent to $17.20 for the biggest S&P 500 decline behind H&R Block. The video-game retailer said Chief Financial Officer Catherine R. Smith resigned to join Wal-Mart Stores Inc., the world’s biggest retailer.

Millipore Corp. soared 32 percent, the most in the S&P 500, to $94.41. Thermo Fisher Scientific Inc., the world’s largest maker of lab instruments, offered about $6 billion for Millipore Corp., seeking to expand its biotechnology business, according to two people close to the situation.

Millipore is worth at least $115 a share, 21 percent more than the bid valued at about $95 from Thermo Fisher, Jefferies & Co. analyst Jon Wood said in a report.

To contact the reporter on this story: Craig Trudell in New York at ctrudell1@bloomberg.net

Last Updated: February 27, 2010 08:00 EST