May 11 (Bloomberg) -- U.S. stocks fell from a four-month high after the Standard & Poor’s 500 Index traded at the most expensive level in seven months and banks said they will sell more shares. Europe’s benchmark index also dropped, while Treasuries advanced.
Capital One Financial Corp., U.S. Bancorp and BB&T Corp. tumbled more than 7.5 percent on plans to sell shares to repay government bailout funds. American Express Co. and JPMorgan Chase & Co. slid at least 8 percent following a 23 percent surge in a measure of financial stocks last week. General Motors Corp. dropped 11 percent after saying bankruptcy is more probable than previously thought.
The S&P 500 lost 2.2 percent to 909.24 at 4:07 p.m. in New York after advancing for eight out of the past nine weeks. The Dow Jones Industrial Average declined 155.88 points, or 1.8 percent, to 8,418.77. Almost five stocks fell for each that rose on the New York Stock Exchange, the broadest sell-off in three weeks. Europe’s Dow Jones Stoxx 600 Index slid 1.4 percent.
“The market has gone too far, too fast,” Douglas Cliggott, the Greenwich, Connecticut-based manager of the $81 million Dover Long/Short Sector Fund, which beat 97 percent of its peers last year, told Bloomberg Radio. “There is a risk that the market will give quite a bit of the move back.”
The S&P 500 last week rose 5.9 percent, erasing this year’s losses, after results from the government’s examination of banks reassured investors and the Labor Department said the pace of job cuts slowed in April. The measure’s 37 percent jump from March 9 through May 8 is the most over similar spans since the 1930s.
Earnings Watch
The S&P 500 ended last week trading at 15.1 times its members’ reported earnings, according to Bloomberg data, the highest valuation since October.
The biggest earnings-season rally since 2002 has pushed 34 percent of the companies in the S&P 500 above analysts’ price targets for the next year, raising concerns about the pace of the recovery. The benchmark index for U.S. equities is within 5 percent of the combined price projections of more than 1,700 securities analysts after gaining 14 percent since Alcoa Inc. reported first-quarter results on April 7.
Earnings for S&P 500 companies will slide 35 percent this quarter and 23 percent in the July-to-September period, according to analyst estimates compiled by Bloomberg.
Options traders are increasing bets that the rally is about to end. Futures on the Chicago Board Options Exchange Volatility Index, which measures the cost of buying or selling options as insurance against declines in the S&P 500, are priced mostly above the gauge’s level of 32.93. The premium on VIX contracts expiring this month through November indicates traders are betting the stock index will fall in the next six months.
American Express Drops
American Express, the nation’s largest credit-card company by purchases, fell 8.3 percent to $26.04. JPMorgan Chase & Co., which passed stress tests without needing fresh capital, sank 8 percent to $35.83.
HSBC Holdings Plc, Europe’s biggest bank, said 2009 will be a “tough” year as bad loans increase and the economy deteriorates. Charges for impaired loans rose in all customer groups and regions during the first quarter, the London-based lender said.
Capital One lost 14 percent to $27.10. U.S. Bancorp slipped 9.9 percent to $18.50. BB&T, which cut its dividend today, slid 7.6 percent to $24.34. Banks that accepted bailout money from the Troubled Asset Relief Program are subject to government oversight and restrictions on compensation that they say put them at a disadvantage to competitors.
‘Take a Breather’
“The relief over the stress tests drove markets and improved sentiment last week,” said Thomas Schudel, a fund manager at Clariden Leu in Zurich, which oversees about $88 billion. “We could see the market take a breather today.”
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