U.S. Stocks Fall as Chicago Business Index Trails Estimates

Sept. 30 (Bloomberg) -- U.S. stocks fell for a second day as an unexpected contraction in a measure of business activity spurred concern the economy is struggling to recover.

American Express Co., Walt Disney Co. and JPMorgan Chase & Co. dropped more than 2 percent to lead declines in all 30 stocks in the Dow Jones Industrial Average after the Institute for Supply Management-Chicago Inc.’s business barometer trailed economists’ estimates. CIT Group Inc., the 101-year-old commercial lender, tumbled 35 percent on concern it will be forced into bankruptcy.

The S&P 500 lost 1.2 percent to 1,047.68 at 10:39 a.m. in New York. The Dow Jones Industrial Average tumbled 113.96 points, 1.2 percent, to 9,628.24. About seven stocks fell for each that rose on the New York Stock Exchange.

“We’re in the faith part of the economic cycle,” said Ralph Shive, manager of the $1.3 billion Wasatch-1st Source Income Equity Fund, which has beaten 96 percent of competing funds over the past five years. “All of us to some degree are guessing how strong the recovery is or how long it will take. Market prices have anticipated a decent recovery at this point. At some point we need to see earnings turn.”

Benchmark indexes erased an early advance spurred by a Commerce Department report showing the recession abated more than originally estimated in the second quarter. The world’s largest economy shrank at a 0.7 percent annual rate from April through June, the best performance in a year and better than the 1.2 percent decrease estimated by economists in a survey.

Quarterly Rally

The S&P 500 has jumped 14 percent in the third quarter, building on a 15 percent rally in the April to June period. The rally has sent price-earnings valuations in the index this month to the highest levels since 2004. The measure has rebounded 57 percent from a 12-year low in March.

CIT slumped 35 percent to $1.42. The lender is considering an offer of financing from Citigroup Inc. and Barclays Capital, people familiar with the situation said. Bondholders are also seeking to provide about $2 billion in loans as a restructuring deadline approaches tomorrow, said the people, who declined to be identified because the negotiations are private. CIT may choose other options, the people said.

Darden Restaurants Inc. fell the most in the S&P 500, declining 8.9 percent to $33.28. The owner of the Olive Garden and Red Lobster chains said first- quarter sales dropped 2.3 percent, missing analysts’ estimates.

Moody’s Corp. tumbled 6.8 percent to $19.39. U.S. House Oversight and Government Reform Committee is holding a hearing on rating companies today in Washington. McGraw-Hill Cos., owner of Standard & Poor’s, slipped 3.8 percent to $25.12.

Saks, Nike

Saks Inc. dropped 6.3 percent to $6.72. The luxury retail chain plans to offer as much as $100 million in shares, using the proceeds to reduce debt, according to a regulatory filing.

Nike Inc. jumped 7.3 percent to $64.48 and advanced earlier to $64.65, the highest intraday price since October 2008. The world’s largest athletic-shoe maker posted first-quarter profit that exceeded analysts’ estimates as it cut marketing and personnel costs.

All 10 of the main industry groups in the S&P 500 advanced in the third quarter, led by a 24 percent rally in financial shares and 20 percent gains in industrial and commodity producers.

Gannett Co., the nation’s largest newspaper publisher, posted the steepest advance in the index, more than tripling in the quarter. Hartford Financial Services Group Inc., Wynn Resorts Ltd. and Tenet Healthcare Corp. more than doubled.

Recovering Economy

The gains came amid speculation the economy was returning to growth following the worst recession in seven decades. Home prices stabilized, consumer confidence strengthened as job losses abated and the Institute for Supply Management said manufacturing activity ended an 18-month contraction in August.

The performance of the U.S. economy is probably more sluggish than reflected in stock markets, risking a correction in equities, Nobel Prize-winning economist Michael Spence said.

U.S. stock-market investors have “over processed” the stabilization of growth in the world’s largest economy, Spence said in an interview in Kuala Lumpur yesterday. The U.S. economy isn’t likely to experience a “double-dip” slowdown even as that remains a risk, said the professor emeritus of management in the Graduate School of Business at Stanford University.

Alcoa will be the first company in the Dow average to release third-quarter earnings next week, set for Oct. 7.

Analysts expect profits in the S&P 500 to drop 22 percent on average in the third quarter before rebounding 63 percent in the final three months of the year, according to estimates compiled by Bloomberg.

The International Monetary Fund today cut its projection for global writedowns on loans and investments by 15 percent to $3.4 trillion, citing improvements in credit markets and initial signs of economic growth.