Sept. 21 (Bloomberg) -- U.S. stocks fell, pulling the Dow Jones Industrial Average down from an 11-month high, on speculation a six-month rally has outpaced prospects for profit growth. European and Asian shares dropped, while oil and gold retreated as the dollar rose. Treasuries were little changed. Bank of America Corp. lost 2.2 percent on a report that it may drop a loss-sharing agreement with the government. Halliburton Co. helped lead declines in 33 of 40 shares in a gauge of energy companies as crude slid below $70 a barrel, while Newmont Mining Corp. declined as metals fell. Lennar Corp. dropped 3.1 percent after the homebuilder’s loss doubled. “The stock market is vulnerable,” said Keith Wirtz, chief investment officer at Fifth Third Asset Management Inc., which oversees $20 billion in Cincinnati. “There’s a large crowd expecting a pullback after such a strong spike. We’ve gotten beyond the idea that the economy is less bad. People want to see evidence of whether companies can actually start to grow.” The Standard & Poor’s 500 Index fell 0.3 percent to 1,064.66 at 4:08 p.m. in New York. The Dow dropped 41.34 points, or 0.4 percent, to 9,778.86. Five stocks retreated for every two that rose on the New York Stock Exchange. Eight of 10 industry groups in the S&P 500 dropped, with gains in health-care and technology companies limiting the market’s decline. The S&P 500 rallied 2.5 percent last week as increases in retail sales and industrial production signaled the economy is improving. The 58 percent rebound in the benchmark index for U.S. equities from its 12-year low March 9 through last week pushed valuations to almost 20 times the reported earnings from continuing operations of its companies, the highest level since 2004, according to weekly data compiled by Bloomberg. ‘Overshot the Fundamentals’ U.S. stocks are overvalued following the S&P 500’s steepest rally since the Great Depression, economist David Rosenberg said. “The market is being really fueled here by technicals and momentum,” Rosenberg, chief economist at Gluskin Sheff & Associates Inc. in Toronto, said in an interview on Bloomberg Television. “It’s overshot the fundamentals. I’m a little nervous, at least over the near-term.” Equities remained lower even after the Conference Board said its index of U.S. leading economic indicators rose in August for the fifth straight time, capping the longest stretch of gains since 2004 and signaling a recovery is under way. The gauge of the economic outlook for the next three to six months rose 0.6 percent, in line with forecasts, after a revised 0.9 percent rise in July. Calling the End The global economy has probably hit bottom and the U.S. may have emerged from recession at the end of July or in August, Paul Krugman, the Nobel Prize-winning economist, said at a seminar in Helsinki today. Leaders from the Group of 20 nations meet in Pittsburgh this week to balance reviving the global economy with increased financial regulation. President Barack Obama said in an interview with CNN yesterday that “the jobs picture is not going to improve considerably, and it could even get a little bit worse, over the next couple of months.” The Dow Jones Stoxx 600 Index of European shares slid a second day, losing 0.8 percent. A 54 percent increase since March 9 drove valuations on the gauge to 47 times reported profit, the highest level since June 2003, weekly Bloomberg data show. The MSCI World measure is valued at almost 28 times profit, also the most expensive level since June 2003. Asian Shares Slump The MSCI Asia Pacific Index fell 0.8 percent, led by mining and financial companies. Markets in Japan, Singapore, Malaysia, Indonesia, the Philippines and India were shut for holidays. The MSCI World has climbed 64 percent since March 9 as the G-20 committed about $12 trillion to revive growth and the Federal Reserve kept overnight borrowing costs near zero to unlock credit markets. The collapse of subprime mortgages spurred $1.6 trillion in writedowns and losses at the world’s biggest financial firms. “When you start looking at valuations relative to other asset classes and relative to history, the equity market is not looking cheap any longer,” Barry Knapp, head of U.S. equity strategy at Barclays Plc, told Bloomberg Television. “The market looks somewhat extended and we will have to have strong macroeconomic growth to support that.” Commodity Producers Energy producers in the S&P 500 lost 0.9 percent. Crude oil for October delivery tumbled 3.3 percent to $69.70 a barrel on the New York Mercantile Exchange. Halliburton, the world’s second-largest oilfield-services provider, fell 2.5 percent to $27.45. Exxon Mobil Corp. lost 0.6 percent to $69.57, while ConocoPhillips dropped 1.4 percent to $46.15. Newmont Mining, the largest U.S. gold producer, fell 1.2 percent to $44.41 as gold fell for the third straight session as a rebound by the dollar reduced demand for the precious metal as an alternative investment. Silver also sank. Alcoa Inc., the largest U.S. producer of aluminum, slipped 0.9 percent to $13.94 as the metal fell 1.7 percent. Aluminum production is likely to outpace demand for the next six to 12 months and will “become less bearish” rather than turn bullish, Max Layton, an analyst at Macquarie Bank Ltd. in London, said in a report. Potash Corp. of Saskatchewan dropped 4.2 percent to $93.09 after the company said profit this year will be $3.25 to $3.75 a share instead of the previous forecast of $4 to $5. The new forecast missed analysts’ estimates. Mosaic Co., North America’s second-largest crop-nutrient producer, decreased 5.2 percent to $51.41. Intrepid Potash Inc. tumbled 6.4 percent to $24.11. Banks Slump Bank of America led financial shares more than 0.9 percent lower for the biggest decline in the S&P 500 among 10 industries. The largest U.S. bank is near an agreement with the U.S. Treasury Department and Federal Reserve to drop a tentative loss-sharing accord designed to complete the acquisition of Merrill Lynch & Co., the Wall Street Journal reported, citing an unidentified person familiar with the matter. The Charlotte, North Carolina-based bank also failed to meet a deadline today to provide documents to a House panel about its purchase of Merrill Lynch, said Jenny Rosenberg, a spokesman for the House Oversight and Government Reform Committee, in an e-mail today. Anne Finucane, the bank’s chief marketing officer, will meet tomorrow with House Oversight and Government Reform Committee Chairman Edolphus Towns, the bank announced. Bank of America fell 2.2 percent to $17.25. JPMorgan Chase & Co. declined 0.9 percent to $44.55. American Express Co. had the biggest decline in the Dow, dropping 2.9 percent to $33.76. Lennar’s Loss Lennar declined 3.1 percent to $16.02. The third-biggest U.S. homebuilder said its net loss for the three months through August widened to 97 cents a share from 56 cents as revenue tumbled 42 percent. The average estimate by 14 analysts in a Bloomberg survey was for a loss of about 51 cents a share. “We’ve come a long way from the March lows,” said Tom Wirth, senior investment officer at Chemung Canal Trust Co., which manages $1.6 billion in Elmira, New York. “The rally has fairly priced in an improving economy. Investors are now waiting for revenue growth.” Perot Systems Corp. soared 65 percent to $29.56, while Dell Inc. slid 4.1 percent to $16.01. Dell offered to buy Perot for $3.9 billion in cash, or $30 per share, as the second-largest personal computer maker undertakes its biggest purchase ever to compete with International Business Machines Corp. and Hewlett- Packard Co. in computer services. M&A Potential Never before have U.S. companies piled up cash faster compared with interest costs than they are now, setting the stage for a surge in mergers and acquisitions. As the economy emerges from the recession, cash flow may rise from the $1.5 trillion reported by the Commerce Department for the year ended in June, according to data compiled by Credit Suisse Group AG and Bloomberg. Celgene Corp. and Amgen Inc. led a gauge of health-care companies 0.7 percent higher for the biggest gain among 10 S&P 500 groups. Celgene rallied 5 percent to $55.19 after the global biopharmaceutical company was raised to “outperform” from “neutral” at Robert W. Baird & Co. Inc. The 12-month share target price is $65. Amgen, the world’s largest biotechnology company, rose 2.5 percent to $62.31. after saying its bone-strengthening drug denosumab delayed the development of fractures and the need for surgery in patients with cancer that has spread to the bone about as well as Novartis AG’s Zometa, a study found. AIG, Wal-Mart Rally American International Group Inc. jumped 21 percent to $48.40 for the biggest gain in the S&P 500. Terms of the insurer’s government rescue package, revised three times in the past year, would be eased again under a proposal being pushed by the leader of the House Oversight and Government Reform Committee. Wal-Mart Stores Inc. had the steepest advance in the Dow, rising 1.6 percent to $50.91. The world’s largest retailer was initiated with an “overweight” recommendation and a price estimate of $61 at HSBC Holdings Plc, according to an e-mailed report. Wal-Mart led a gauge of nine food and consumer staples retailers to an 0.8 percent advance, the biggest among 24 industries. Costco Wholesale Corp., the largest U.S. warehouse, rose 1.8 percent to $58.58. General Electric Co. rose 1.6 percent to $16.76. Morgan Stanley lifted its share-target for GE by 12 percent to $19, citing an improvement in the company’s risk profile. Dollar Strengthens The dollar climbed 0.8 percent against the yen and strengthened 0.2 percent versus the euro. The Dollar Index, which tracks the dollar against the currencies of six major U.S. trading partners, increased 0.3 percent. The Fed will keep its target rate for overnight loans in a range of zero to 0.25 percent at its two-day policy meeting starting tomorrow, according to all 91 economists surveyed by Bloomberg News. “The Fed is on hold for a very long time,” Pacific Investment Management Co. strategic adviser Richard Clarida said in an interview with Bloomberg Television in New York. Treasury two-year notes were little changed as traders prepared for tomorrow’s $43 billion sale of the securities, the first of three auctions this week totaling $112 billion. The 10- year note yield rose two basis points to 3.49 percent. It earlier declined as much as five basis points.

Source