U.S. Stocks Decline as Intel, IBM Tumble After Results

By Rita Nazareth - Apr 19, 2012 4:06 AM GMT+0700

U.S. stocks fell, after the biggest advance in more than a month for the Standard & Poor’s 500 Index, as Intel (INTC) Corp. and International Business Machines Corp. drove a slump in technology shares after reporting results.

Intel and IBM (IBM) dropped at least 1.8 percent amid the slowest sales growth since 2009. Berkshire Hathaway Inc. (BRK/A) Class A shares slid 1.3 percent as Warren Buffett was diagnosed with stage 1 prostate cancer. Genworth Financial Inc. tumbled 24 percent after delaying plans for a public offering of its Australian unit backing home loans after “elevated” losses in the nation. Qualcomm Inc. (QCOM), the largest maker of mobile-phone chips, sank 3.5 percent at 5:03 p.m. New York time on disappointing forecasts.

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April 18 (Bloomberg) -- Bob Rice, managing partner at Tangent Capital Partners LLC, talks about the outlook for U.S. technology stocks and his investment strategy. Stocks fell in the U.S., after the biggest advance in more than a month for the Standard & Poor’s 500 Index, as Intel Corp. and International Business Machines Corp. drove a slump in technology shares after reporting results. Rice speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

The S&P 500 fell 0.4 percent to 1,385.14 at 4 p.m. New York time. The Dow Jones Industrial Average slid 82.79 points, or 0.6 percent, to 13,032.75. The Russell 2000 Index (RTY) dropped 0.9 percent to 803.32. About 5.9 billion shares changed hands on U.S. exchanges, or 12 percent below the three-month average.

“Profits are lukewarm,” said Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, which oversees about $40 billion. “You get disappointments from some bellwether technology companies at a time when the market has had such a good run. We’re not bearish, but if we’re going to add to positions, we need a pullback.”

Stocks fell as Intel forecast gross margin that was lower than some analysts predicted and IBM’s sales missed forecasts. The S&P 500 had risen 11 percent in 2012 through yesterday on better-than-estimated economic and corporate data. Equities also dropped as Bank of England policy makers said inflation may be higher than forecast. Spain will auction 3.3 percent two-year notes and 5.85 percent 10-year debt tomorrow.

‘Fragile’

BlackRock Inc. (BLK)’s Laurence D. Fink, who has been advising investors to put more money in stocks, said clients are still overwhelmed by fear as global markets remain “fragile” despite the first-quarter rally. Fink said investors remain pessimistic and customers removed money from active equity products while turning to passive investments such as exchange-traded funds.

“The fears of the investor still are more overwhelming than the hope for a better future,” Fink, chairman and chief executive officer of New York-based BlackRock, said today during a conference call with investors and analysts. “Despite the rally in global equities from its lows, I would still qualify the market to be quite fragile.”

Nine out of 10 groups in the S&P 500 (SPX) retreated today as financial and technology shares had the biggest losses. Both groups are still up more than 17 percent this year, for the biggest gains in the benchmark index.

Intel, IBM

Intel slumped 1.8 percent to $27.95, while IBM retreated 3.5 percent to $200.13. IBM’s revenue climbed 0.3 percent to $24.7 billion in the period, while Intel sales rose 0.5 percent to $12.9 billion. That was the smallest increase for either company since the third quarter of 2009, when the U.S. economy was just emerging from recession. Even so, Intel predicted a pickup in sales for the current quarter.

The two technology giants are seeking growth in emerging markets while coping with a slowdown triggered by the European debt crisis. The personal-computer market, which contracted in the U.S. last year for the first time since 2001, also is hurting demand for Intel’s processors. IBM, meanwhile, is more focused on expanding earnings per share, rather than pursuing less-profitable orders.

“All else being equal, you’d rather see top-line growth,” said Toni Sacconaghi, an analyst at Sanford C. Bernstein & Co. in New York. Still, he said, most investors are looking more closely at profit than sales. “IBM has conditioned investors to focus on EPS growth. That’s how it provides guidance.”

Not Life Threatening

Berkshire Hathaway Class A shares lost 1.3 percent to $119,750 even after Buffett said his condition is “not remotely life threatening.” The 81-year-old billionaire will begin a two-month treatment of daily radiation in July, he said.

“I feel great -- as if I were in my normal excellent health -- and my energy level is 100 percent,” Buffett said in the letter yesterday. “I will let shareholders know immediately should my health situation change. Eventually, of course, it will; but I believe that day is a long way off.”

Genworth Financial Inc. tumbled 24 percent, the most since 2008, to $5.87. The IPO (GNW) is now planned for early 2013, after the company previously targeted the offering for the second quarter of this year, the insurer said. Genworth has said it plans to sell as much as 40 percent of the unit.

Apple (AAPL) Inc. fell 0.2 percent to $608.34, after swinging between gains to losses during the day. Goldman Sachs Group Inc. said investors should buy Apple shares, which fell as much as 8.8 percent in the past week, amid a “very big year” for the world’s biggest company by market value.

Qualcomm’s Results

After the close of regular trading, two other technology giants reported results. Qualcomm sank 3.5 percent to $64.64 in extended trading. The largest maker of mobile-phone chips projected third-quarter sales and profit that fell short of some analysts’ estimates. EBay Inc. (EBAY) surged 6.5 percent to $38.20 at 5:03 p.m. New York time as sales and profit topped analysts’ forecasts.

Yahoo! Inc. (YHOO) advanced 3.2 percent to $15.49 as first-quarter sales topped estimates, fueling optimism that a turnaround effort by Chief Executive Officer Scott Thompson may take hold.

Halliburton Co. (HAL) added 4.6 percent to $34.17. The world’s largest provider of hydraulic fracturing services said first- quarter profit increased as rising crude prices drove producers to expand drilling in North America.

Catalyst Health Solutions Inc. (CHSI) surged 34 percent to $85.23. SXC Health Solutions Corp. (SXC) agreed to buy the company in a cash and stock transaction valued at $4.4 billion to stay competitive as larger pharmacy benefits managers join forces. SXC Health jumped 11 percent to $89.36.

Catch a Break

Consumers may catch a break from higher food prices at U.S. supermarkets, said Charles Grom, an analyst at Deutsche Bank AG. Consumer prices for groceries and producer prices for processed foods are rising more slowly this year, according to data compiled by the Labor Department.

The pace of price increases slowed in March by the most since July 2009, according to both indicators. Food bought at stores cost 3.6 percent more than a year earlier. The rate was 0.9 percentage point lower than in February. Processed-food prices last month rose 4.3 percent, a decline of 1.6 point.

“Food inflation should continue to slow,” he wrote, because increases last year were unusually steep. Prices for food that’s eaten at home peaked at a 6.2 percent growth rate last September. The pace was the fastest since December 2008.

Sales growth may suffer at Wal-Mart Stores Inc. (WMT), the world’s largest retailer, and the Safeway Inc. (SWY) and Supervalu Inc. supermarket chains as they struggle to raise prices, Grom wrote. The New York-based analyst has sell ratings on Wal-Mart and Safeway and a hold rating on Supervalu.

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