Most U.S. Stocks Slide After Economic Growth Trails Forecasts

By Eric Martin

July 31 (Bloomberg) -- Most U.S. stocks fell after economic growth trailed forecasts, jobless claims rose to a five-year high and Exxon Mobil Corp.'s profit missed estimates.

``The data put the market on notice that the economy is slowing,'' said Quincy Krosby, who helps manage $380 billion as chief investment strategist at the Hartford in Hartford, Connecticut. ``It's not equity friendly.''

Caterpillar Inc., Boeing Co. and Walt Disney Co. led the retreat after the Commerce Department said the economy grew at a 1.9 percent rate last quarter and contracted at the end of 2007. Exxon Mobil fell the most in two weeks after declining production slowed earnings growth. ImClone Systems Inc. posted its best gain in 13 years on Bristol-Myers Squibb Co.'s offer to take over the maker of the colon-cancer drug Erbitux, while an unexpected profit sent Motorola Inc. to its steepest rally in four years.

The S&P 500 added 0.67 point, or less than 0.1 percent, to 1,284.93 at 11 a.m. in New York, leaving the benchmark index up 0.4 percent in July. The Dow Jones Industrial Average lost 24.02, or 0.2 percent, to 11,559.67. The Nasdaq Composite Index added 20.42, or 0.9 percent, to 2,350.14. Twenty stocks retreated for every 19 that rose on the New York Stock Exchange.

The 448,000 increase in jobless claims weighed on stocks as investors await tomorrow's government report that is forecast to show the economy lost 75,000 jobs in July. Even though the majority of companies have beaten estimates, S&P 500 profit growth has slumped 21 percent on average from a year earlier, according to data compiled by Bloomberg.

Drop Limited

The market's losses were limited after the government reports spurred a drop in oil prices and caused traders to boost bets that the Federal Reserve will leave its benchmark lending rate unchanged in coming months.

Caterpillar, the largest maker of bulldozers, slumped $1.51 to $70.56. Boeing, the world's second-biggest commercial airplane maker, lost 1.9 percent to $62.59.

Disney, the biggest theme-park operator, dropped $1.05, or 3.3 percent, to $30.62 even after posting a 9 percent gain in third-quarter profit and beating analysts' estimates.

The Commerce Department report on gross domestic product showed the drag from the worst housing slump since the Great Depression and rising unemployment blunted the impact of federal tax rebates. Economists surveyed by Bloomberg had forecast growth of 2.3 percent in the second quarter. The report also contained annual revisions that lowered the growth rate back to 2005.

``The markets don't like it,'' said Peter Boockvar, an equity strategist at Miller Tabak & Co. in New York. ``You listen to a market of optimists who think the worst is over and that it's gonna be OK, but this data is showing you it's not.''

Exxon, MasterCard

Exxon slid $2.84, or 3.4 percent, to $81.54. Production tumbled 7.8 percent after assets were seized in Venezuela, Nigerian workers went on strike and record prices triggered contract clauses that give oil-rich governments a bigger share of output.

MasterCard Inc. dropped $17.54, or 6.5 percent, to $253.190. The world's second-biggest credit-card company posted a $746.7 million loss on costs to settle an antitrust lawsuit with American Express Co.

Motorola Inc., Tyco International Ltd. and Symantec Corp. gained after reporting earnings that topped analysts' estimates.

ImClone Takeover

ImClone Systems soared on Bristol-Myers' offer to buy the portion of the company it doesn't already own, seeking to return to prominence as a maker of cancer drugs. The $4.33 billion deal offers a 29 percent premium over yesterday's closing share price. ImClone rose $18.01, or 39 percent, to $64.45.

Motorola rose 97 cents, or 13 percent, to $8.65. The largest U.S. mobile-phone maker posted an unexpected second-quarter profit after the company cut jobs and sales beat estimates.

Tyco gained 96 cents, or 2.3 percent, to $43.47. The world's biggest maker of security and fire systems beat analysts' estimates with a third-quarter profit of $199 million, led by higher sales of industrial valves and metal tubing. The company said profit this year will exceed its previous forecast.

Symantec gained $1.31, or 6.7 percent, to $21. The world's biggest maker of security software gave a better-than-anticipated forecast, saying the U.S. economic slowdown isn't curbing growth.

Akamai Technologies Inc. fell the most in the S&P 500, losing $6.14, or 20 percent, to $25.11. The largest supplier of software to speed up Web services lowered its profit forecast.

Bear Markets

All of the 23 developed nations in the MSCI World Index except for Canada have experienced bear-market plunges of 20 percent or more since September as credit losses surged and record commodity prices stoked inflation. Brazil last week became the 23rd out of 25 developing countries in the MSCI Emerging Markets Index to enter a bear market. Only Jordan and Morocco avoided such slumps.

Stocks have declined since October as financial institutions worldwide suffered $480.4 billion in writedowns and credit losses stemming from the collapse of the subprime mortgage market. That prompted economists to forecast 1.5 percent growth in the U.S. economy in 2008, the slowest since 2001. Equities also suffered as inflation increased, giving the U.S. consumer price index the steepest gain since 1991.

Profit forecasts for the third quarter have improved this week. The 73 companies that gave outlooks say profit will rise an average of 1.8 percent, according to data compiled by Bloomberg. That's up from 0.9 percent at the end of last week though below the 7.3 percent growth projected by analysts.

To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.