U.S. Stocks Decline on Disappointing Economic Data as UPS Slumps

By Rita Nazareth - Oct 26, 2011 4:05 AM GMT+0700

U.S. stocks fell, halting a three- day rally, as United Parcel Service Inc. slumped, economic reports missed estimates and uncertainty grew over how much progress European leaders are making in debt-crisis talks.

UPS, whose deliveries make it a proxy for the economy, lost 2.1 percent as international shipping growth began to cool while U.S. expansion stagnated. 3M Co., the maker Scotch-Brite sponges, sank 6.3 percent after cutting its profit forecast. Netflix Inc. plunged 35 percent as the company projected losses in 2012. Amazon.com Inc. tumbled 14 percent after the close of regular trading as earnings missed analysts’ projections.

The Standard & Poor’s 500 Index fell 2 percent to 1,229.05 as of 4 p.m. New York time, after gaining 3.7 percent over the previous three days. All 10 S&P 500 groups declined as a gauge of financial shares slid 3.1 percent. The Dow Jones Industrial Average sank 207 points, or 1.7 percent, to 11,706.62. The Russell 2000 Index of small companies lost 3 percent.

“It’s going to be a slow recovery,” Mark Bronzo, who helps manage $23 billion at Security Global Investors in Irvington, New York, said in a telephone interview. “The economic data show that we’re in a bottoming process. UPS gave some cautious commentary concerning global growth. In addition, we’re still slave to the events in Europe.”

The S&P 500 rose from the threshold of a bear market early in October on steps by European leaders to support banks and higher-than-estimated corporate earnings. The benchmark gauge for American equities has rallied 8.6 percent so far in October, following a five-month decline.

‘Trap’ Bulls

The benchmark gauge may climb above yesterday’s close before starting a retreat in the next three weeks that will “trap” bulls, said Tom DeMark, the creator of indicators to show turning points in securities.

After the decline that began today ends just above 1,200, the benchmark gauge for U.S. equities may rally about 5 percent and begin a process that would signal another drop, DeMark said. The index’s peak will come in November after it closes higher on four to six successive days, he said.

“The market is going to build a trap, and many of the people who are bullish are going to be trapped,” DeMark said in an interview today on Bloomberg Television’s “Street Smart” hosted by Lisa Murphy and Adam Johnson. “It’s going to be tired and disappoint everyone.”

Benchmark gauges extended losses today after consumer confidence unexpectedly slumped in October to the lowest level since March 2009, when the U.S. economy was in a recession. Separate data showed that home prices in 20 U.S. cities dropped more than forecast in August, highlighting one of the obstacles facing the economic recovery in its third year.

Most-Tied

The Morgan Stanley Cyclical Index of companies most-tied to the economy dropped 2.4 percent. The Dow Jones Transportation Average, a proxy for the economy, declined 2.2 percent. The KBW Bank Index lost 3.2 percent. A gauge of homebuilders in S&P indexes tumbled 4.5 percent.

Stocks also fell as the cancellation of tomorrow’s meeting of European Union finance ministers spurred concern that summits of the region’s leaders will fail to produce agreements on how to tame the debt crisis. European leaders will hold a summit tomorrow as they seek to bolster the region’s rescue fund, recapitalize banks and provide debt relief to Greece.

“It’s hard to get excited in this environment,” Timothy Ghriskey, who oversees $2 billion as chief investment officer of Solaris Group LLC in Bedford Hills, New York, said in a telephone interview. “You have very anemic growth and you have a big question mark about the debt situation in Europe.”

Earnings Season

About three quarters of the S&P 500 companies that reported results since Oct. 11 beat analysts’ projections, the data showed. Earnings have surpassed estimates by an average 5.9 percent. Since 2009, profit has exceeded forecasts by an average 8.5 percent a quarter.

UPS decreased 2.1 percent to $69.35. The company cut its airlift capacity for Asia as shipments to the U.S. decreased, the Atlanta-based company said on a conference call after announcing third-quarter earnings. International deliveries overall increased 4.6 percent, trailing the 6.2 percent gain in the previous three months.

Traders had boosted the price of bearish UPS options to the highest level since 2008 before the company’s quarterly report. The cost of puts to sell was 57 percent higher than calls to buy as of Oct. 21, according to data compiled by Bloomberg. The price relationship known as skew widened 20 percent since Oct. 4. For FedEx Corp., the company’s biggest competitor, the gap in option prices increased 8.6 percent during the period.

Slowing Sales

3M lost 6.3 percent to $77.04. Electronics sales are slowing after several quarters of what 3M called “very good growth.” The company, whose stock rallied 14 percent this month before today, is seeing the effect of a slowdown in developed countries earlier than other manufacturers because some of its products, such as components for liquid-crystal-display TVs, are tied to consumer demand.

Netflix plunged 35 percent, the biggest decline since 2004, to $77.37. The company faces rising content costs, a customer revolt over a price increase and startup costs as it expands into Latin America, followed by the U.K. and Ireland in early 2012. Other new markets will have to wait, Chief Executive Officer Reed Hastings said.

Amazon.com tumbled 14 percent to $195.11 at 4:30 p.m. New York time. The world’s largest Internet retailer reported a plunge in third-quarter profit after it ramped up spending on new products such as the Kindle Fire tablet.

Decline in Shipments

AK Steel Holding Corp. declined 14 percent to $7.47. The third-largest U.S. steelmaker by volume reported less revenue than analysts projected and a decline in shipments.

First Solar Inc., the biggest maker of thin-film solar panels, sank 25 percent to $43.27 as Chairman and founder Mike Ahearn was named interim chief executive officer, replacing Rob Gillette. The company didn’t give a reason for Gillette’s departure.

MF Global Holdings Ltd. tumbled 48 percent, the most since 2008, to $1.86. The futures broker that had its credit rating cut yesterday to the lowest investment grade reported its largest-ever quarterly loss.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net