US stocks down as financials suffer

Trading in shares of MF Global was suspended after the broker-dealer, which has been weighed down by exposure to European sovereign debt, filed for bankruptcy on Monday morning. Attempts to sell the company to Interactive Brokers failed over the weekend.

MF Global’s market capitalisation had fallen by two-thirds last week, with the shares valued at $1.20 when trading was suspended.

The S&P 500 index fell 2.5 per cent to 1,253.30, its second worst day of the month. European concerns returned to the fore as Italian bond yields approached euro-era highs. Monday’s losses left the benchmark US index up 10.7 per cent for October, still the best month since December 1991.

Half of Monday’s losses came in the last hour as the Euro fell against the dollar.

“It was a day of profit taking that accelerated at the end of the day,” said Ryan Detrick, chief investment strategist at Schaeffers. “That makes sense given the strength of last week’s rally. I’m not too worried as long as the market holds here.”

Utilities and consumer staples held up best. Cyclical energy and material stocks suffered the worst, down 4.4 per cent and 4.2 per cent respectively.

Solar stocks were left particularly bruised after the UK government proposed a 55 per cent cut in its solar subsidy scheme.

First Solar was off 7.8 per cent to $49.77 and MEMC Electronic Materials was off 9.8 per cent to $5.99.

“The entire solar industry is subsidised and, when you look at any region, subsidies are under threat everywhere apart from China,” said Ben Pang, alternative energy analyst at Caris and Company.

Oil driller Nabors Industries fell 3.8 per cent $18.33, although it had traded in positive territory most of the day, despite revealing it had paid $100m to chairman Eugene Isenberg after he relinquished his post as chief executive.

The company, which is based in Bermuda, has faced shareholder rebellions in the past over compensation paid to the estates of deceased executives and executive pay.

“It’s a huge payout and again Nabors shareholders are the losers,” said Peter Flaherty, president of the National Legal and Policy Center, a shareholder activist group, which holds Nabors stock. “It seems that Isenberg has absolutely no regard for appearances, even when corporate excess is under scrutiny.”

Nabors did not comment on the payout.

Financials, which had benefited most from improving sentiment towards Europe, were also sold off.

Insurers were worst hit. Lincoln National was off 11 per cent to $19.05 and Genworth Financial fell 6.9 per cent to $6.38.

Asset managers and investment banks also suffered. Money manager Janus Capital was off 9.1 per cent to $6.56, while Morgan Stanley dropped 8.6 per cent to $17.64 and Goldman Sachs was off 5.5 per cent to $109.55.

Yahoo fell 5.6 per cent to $15.64 on reports the company may dispose of Asian assets, rather than be acquired as a single business.

Humana was the stand-out performer in the S&P 500. The health insurer jumped 5.7 per cent to $84.89 after forecasting full-year earnings of between $8.35 and $8.40 a share, which would represent a 20 per cent jump on last year’s profit and is a big improvement on a previous estimate of $7.50 to $7.60 a share.

Humana benefited from having a higher proportion of customers covered by Medicare – the government healthcare programme for senior citizens – and from low customer claims.

The company predicted 2012 earnings per share will moderate to $7.40 to $7.60.

The Dow Jones Industrial Average was 2.3 per cent lower at 11,955.7 and the Nasdaq Composite index fell 1.9 per cent to 2,684.41.

But despite scepticism about the sustainability of last week’s rally, some strategists at big US banks advised clients to position for further gains.

Adam Parker, chief US equity strategist at Morgan Stanley, urged clients to hold more material stocks, arguing valuations remain “in the cheapest quintile versus history”, despite last week’s rally.

Nikolaos Panigirtzoglou at JPMorgan Chase said the rally could gather further steam as hedge fund managers “increase their equity exposure given their poor performance this year, as they attempt to recover their losses”.

Electronic broker Charles Schwab released a survey showing the majority of its clients still expect the S&P 500 to rise through to the end of the year.

Diversified energy and commercial property holding company Loews was down 3.8 per cent to $39.70 despite reporting third-quarter profits of $162m, or 40 cents a share, compared with only $36m in the 2010 third quarter. Analysts had been expecting 54 cents a share.

Healthcare real estate investment trust HCP Inc fell 0.9 per cent to $39.88 after funds from operations in the third quarter rose to 63 cents per share, up 16.7 per cent from the same quarter in 2010.