By Nikolaj Gammeltoft and Inyoung Hwang - Apr 20, 2012 3:49 AM GMT+0700
U.S. stocks retreated for a second day as disappointing economic data and concern over Europe’s debt crisis overshadowed better-than-forecast earnings from companies including EBay Inc. (EBAY) and Morgan Stanley.
Alcoa Inc. (AA) and DuPont Co. slid at least 1.2 percent, as investors sold shares of companies most tied to economic growth. Qualcomm Inc. (QCOM) declined 6.6 percent after projecting sales and profit that fell short of estimates. EBay Inc. rallied 13 percent, the most since 2005, as earnings were helped by growth in its PayPal payments business. Microsoft Corp. (MSFT) rose 2.9 percent after regular trading as it reported third-quarter profit that topped analysts’ estimates.
Traders work at the New York Stock Exchange. Photographer: Scott Eells/Bloomberg
April 19 (Bloomberg) -- Paul Miller, an analyst at FBR Capital Markets, talks about Bank of America Corp. first-quarter profit released today. The second-largest U.S. lender said profit excluding certain one-time items rose about 40 percent to $3.7 billion, or 31 cents a diluted share. Miller speaks with Erik Schatzker and Stephanie Ruhle on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
The Standard & Poor’s 500 Index lost 0.6 percent to 1,376.92 at 4 p.m. New York time, after yesterday’s 0.4 percent decline. The Dow Jones Industrial Average slipped 68.65 points, or 0.5 percent, to 12,964.10. About 7.4 billion shares changed hands on U.S. exchanges, 9.7 percent above the 30-day average.
“The market is in a data-driven holding pattern,” Philip Orlando, the New York-based chief equity strategist at Federated Investors Inc., which oversees about $370 billion, said in a phone interview. “You’ve got a lot of counter-balancing points. We got some soft economic data, while earnings are beating expectations. Investors are looking at each incremental data point trying to draw conclusions.”
The S&P 500 fell after reports showed sales of previously owned U.S. homes in March unexpectedly fell, while more Americans than forecast filed applications for unemployment benefits last week. Another report showed manufacturing in the Philadelphia region expanded at a slower pace in April as orders and sales cooled.
European Bonds
Global equities also declined as yields on French and Spanish 10-year bonds climbed at least six basis points, reviving concern about the sovereign debt crisis. Spain sold 2.54 billion euros ($3.3 billion) of two-year and 10-year debt today, compared with a maximum target of 2.5 billion euros. France auctioned 8 billion euros. Citigroup Inc. economist Michael Saunders said in a note that Moody’s Investors Service is likely to place France’s Aaa rating on review for possible downgrade by the fall.
Investors sold shares of companies most tied to economic growth, sending the Morgan Stanley (MS) Cyclical Index down 0.6 percent.
Alcoa, the largest U.S. aluminum producer, erased 1.9 percent to $9.76. DuPont, the most valuable U.S. chemicals producer, slid 1.2 percent to $52.61 after reporting sales volume fell 2 percent in the first quarter, led by declines in the electronics unit and in the Asia Pacific region.
Technology Shares
Technology stocks had the biggest drop among 10 groups in the S&P 500, as Qualcomm led losses, declining 6.6 percent to $62.57. The largest maker of mobile-phone chips projected third- quarter sales and profit that fell short of analysts’ estimates as it increases spending to improve the output of chips.
EMC Corp. (EMC) fell 3.6 percent to $28.10. The world’s biggest maker of storage computers said it will “meet or potentially exceed” its prior full-year 2012 of profit excluding some items of $1.70 a share. Analysts, on average, estimated $1.75.
Apple Inc. (AAPL), the world’s largest company by market value, lost 3.4 percent to $587.44. The Cupertino, California-based company has erased 7.7 percent since April 9, when it reached an all-time high of $636.23.
The chief financial officer of Verizon Communications Inc. said today that the second-largest U.S. phone company activated 3.2 million of Apple’s iPhones in the first-quarter. That’s down 25 percent from the prior quarter, reducing investor expectations for sales in the full year, according to Gene Munster, an analyst at Piper Jaffray Cos.
Stanley Falls
Industrial stocks had the second-biggest drop in the S&P 500. Stanley Black & Decker (SWK) Inc. fell 7.1 percent to $72.91. The producer of power tools reported first-quarter earnings that trailed analysts’ estimates for the first time since 2008, according to data compiled by Bloomberg.
Rockwell Collins Inc. (COL) declined 4.8 percent to $55.85 after cutting its revenue projection for 2012. Danaher Corp. (DHR) retreated 3.1 percent to $53 after forecasting second-quarter earnings that fell short of analysts’ projections.
Bank of America Corp. (BAC) slid 1.7 percent to $8.77 after earlier rising as much as 2.8 percent. The second-largest U.S. lender said first-quarter profit rose amid a rebound in trading and better credit quality.
Morgan Stanley climbed 2.3 percent to $18.07. Stock- and bond-trading revenue rose more than at any other major U.S. bank. Profit was 71 cents a share excluding accounting charges, topping the 44-cent average estimate of 17 analysts surveyed by Bloomberg.
Volcker Rule
Financial stocks extended declines, falling as much as 1.1 percent, after U.S. regulators said Wall Street banks will have two years to implement the so-called Volcker rule so long as they make a “good faith” effort to comply with the ban on proprietary trading. The rule, named for its original champion, former Fed Chairman Paul Volcker, attempts to reduce the chances that banks will make risky investments with their own capital and put depositors’ money at risk.
Travelers Cos. advanced 3.8 percent, the most in the Dow, to $61.70 as earnings beat analysts’ estimates and the company boosted its dividend 12 percent.
EBay rose 13 percent to $40.62, the highest level since February 2006. The world’s largest Internet marketplace reported sales and profit that topped analysts’ estimates, led by growth in its PayPal online-payments business.
Microsoft, the world’s largest software maker, reported after the market close that fiscal third-quarter profit topped estimates on better-than-expected corporate software sales. The shares rose 2.9 percent to $31.90 at 4:48 p.m. New York time.
Earnings Season
Profits of the companies listed on the S&P 500 are forecast to rise 1.7 percent in the first quarter and 2 percent in the next, according to analysts’ estimates compiled by Bloomberg. About 84 percent of the 83 companies that have reported earnings since April 10 have exceeded analysts’ projections. The S&P 500 has gained 9.5 percent in 2012, boosted by better-than-estimated economic and corporate data.
Abby Joseph Cohen, senior U.S. investment strategist at Goldman Sachs Group Inc., said equities will give better returns than bonds in the mid-to-long term as companies look to emerging markets for growth.
“You need to go back to the late 1950s to see a situation which equities were priced as attractively as they are now relative to bonds,” she said in a Bloomberg Radio interview today with Tom Keene. “1958-1959 was a period in which investors were very concerned about the economy and the yields on many equities exceeded the yields on fixed income at that point and -- as you know -- we moved into a multidecade bull market in equities.”
President Barack Obama’s re-election probably would push the S&P 500 lower this November because investors see his policies as “anti-business,” according to Steven Leuthold, chief executive officer and founder of the Leuthold Global Fund.
“Obama is leading to some degree, and I think if Obama is re-elected it would be somewhat of a negative for the market,” Leuthold said in an interview today on Bloomberg Television’s “In the Loop” with Betty Liu. “He’s kind of viewed still as anti-business. He has a lot of support from Wall Street in terms of money. I’m a social liberal but I’m a fiscal conservative.”
To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
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