US Stocks Drop on GE, Bank of America Results, Consumer Data
Oct. 16 (Bloomberg) -- U.S. stocks fell, pulling benchmarkindexes down from a one-year high, as General Electric Co. andBank of America Corp. reported disappointing results and a gaugeof consumer confidence trailed economists’ estimates. The dollarrose for the first time in five days and Treasuries gained.
GE, the world’s biggest maker of jet engines, slumped 4.2percent after reporting $1.9 billion less revenue than analystsforecast. Bank of America retreated 4.6 percent following its $1billion loss. Google Inc. rose 3.8 percent as Chief ExecutiveOfficer Eric Schmidt said the worst of the recession has passedand the company is now more focused on acquisitions.
The Standard & Poor’s 500 Index slipped 0.8 percent to1,087.68 at 4:04 p.m. in New York, trimming a second straightweekly advance. The Dow Jones Industrial Average fell 67.03points, or 0.7 percent, to 9,995.91. The dollar strengthened 0.3percent against the euro.
“The market is evaluating each bellwether as it comesthrough and showing its elation or disappointment,” said PhilipOrlando, who helps oversee $400 billion as chief equity marketstrategist at Federated Investors Inc. in New York. “Today, youhad disappointing earnings from GE and Bank of America and themarket responded accordingly.”
The S&P 500 climbed 1.5 percent this week as better-than-estimated results at JPMorgan Chase & Co. and Intel Corp.spurred optimism that earnings are recovering from the longestslump since the Great Depression. The Dow climbed above 10,000for the first time in a year on Oct. 14.
VIX Losing Streak
The VIX, the benchmark index for U.S. stock options, hasfallen for 10 straight days, its longest streak of declinessince May 2005, as investors pay less for protection againstdeclines in equities. The VIX closed today at 21.43, its lowestlevel in 13 months.
S&P 500 futures rose after the stock market closedyesterday following better-than-estimated earnings from Google.So far, 80.4 percent of companies in the index that releasedthird-quarter earnings beat consensus analyst estimates. Thatcompares with 72.3 percent during the entire April-through-Juneperiod, which matched the highest proportion in Bloomberg datagoing back to 1993.
Eight of 10 industry groups in the S&P 500 turned lowertoday, led by a 2.6 percent drop in financial shares. Equitiesextended declines after the Reuters/University of Michiganpreliminary index of consumer sentiment decreased to 69.4 from73.5 in September, which was the highest in more than a year.Measures of expectations and current conditions both fell.
‘Question Mark’
“Because the consumer is such a question mark, the placesin this recovery we think are the best opportunities for growthare sectors that are more leveraged to the business end of theeconomy,” said Boston-based David Joy, chief market strategistat RiverSource Investments LLC, which oversees $135 billion. Hesaid that includes technology, industrial, materials and energycompanies.
GE slumped 4.2 percent to $16.08. Third-quarter profitdeclined 45 percent as the company scaled back real estate andconsumer lending and sold fewer medical machines, leading to asteeper drop in sales than analysts projected. Revenue decreased20 percent to $37.8 billion.
Bank of America slipped 4.6 percent to $17.26. The lender’s$1 billion third-quarter loss, or 26 cents per diluted share,compared with a profit of $1.18 billion, or 15 cents, a yearearlier.
“All the investment-banking businesses are very strong,but credit problems continue to persist, which is basically thereading you’re getting from the whole economy,” said CarmineGrigoli, chief investment strategist at Mizuho Securities USAInc. in New York.
‘Cautious and Underweight’
Financial shares have surged 144 percent since the S&P500’s 12-year low on March 9, compared with the index’s overallgain of 61 percent.
“We would be cautious and underweight the financialsector, including the banks,” Bob Doll, vice chairman and chiefinvestment officer of equities at BlackRock Inc., said in aninterview with Bloomberg Television. “A slow-growth economywith low nominal growth means some people are not going to beable to pay their bills, and therefore we’re going to have somemore bad credits down the line.” BlackRock oversees $1.37trillion.
International Business Machines Corp. dropped 5 percent to$121.64, its sharpest decline since February. The world’slargest computer-services company said new contract signingsdeclined last quarter, a sign that customers aren’t yet ready toincrease spending as the economy begins to recover.
AMD, Micron Tumble
Advanced Micro Devices Inc. fell 7.3 percent to $5.74 afterthe chipmaker predicted that sales will be “up modestly” inthe fourth quarter, a forecast that fell short of some analysts’estimates. Micron Technology Inc., the biggest U.S. producer ofcomputer memory-chips, declined the most in the S&P 500, losing8.1 percent to $7.95.
Google gained 3.8 percent to $549.85. The company reportedprofit and sales that beat analysts’ estimates after therecovering economy boosted demand for online ads and e-commerce.
“We believe revenue from YouTube, DoubleClick and so forthis still mostly domestic, so the fact that internationalgenerated four-fifths of Google’s revenue growth implies coresearch remains the growth engine,” wrote analysts from GoldmanSachs in a note.
Dollar Rebound
The Dollar Index, used to track the currency against sixmajor U.S. trading partners, rose from a 14-month low. The gaugeadded 0.2 percent to 75.640 as some investors bet that thecurrency’s four-day decline was overstated given signs of a U.S.economic recovery. The dollar advanced against 15 of the 16most-traded currencies tracked by Bloomberg.
“Extreme dollar negative sentiment is not justified byrelative economic trends, and this week’s generally positiveU.S. data mix reaffirms that view,” analysts at Wells Fargo &Co. wrote in a note.
The yield on 10-year Treasuries fell 0.05 percentage point,or five basis points, to 3.41 percent and 30-year yields droppedfor the first time in three days as investors sought higherreturns amid signs the economy is recovering without anacceleration in inflation.
The Federal Reserve said output at U.S. factories, minesand utilities rose in September more than three times as much aseconomists predicted. The 0.7 percent increase exceeded everyforecast in a Bloomberg News survey and followed gains of 1.2percent in August and 0.9 percent in July.
‘Reality Check’
“Monthly production is growing more than estimates, butthe estimates are so incredibly low that it shouldn’t come asany surprise,” said Wayne Wilbanks, chief investment officer atWilbanks, Smith & Thomas in Norfolk, Virginia, which manages$1.3 billion. “We’re getting a reality check on what thiseconomy is, and that’s a very weak recovery.”
MGIC Investment Corp. dropped 12 percent to $6.42. Thelargest U.S. mortgage insurer posted its ninth straightquarterly loss after a record number of homeowners failed tomeet mortgage payments.
Genworth Financial Inc., the life insurer and mortgageguarantor, lost 6.4 percent to $11.23.
Discover Financial Services, the credit-card company thattook $1.3 billion from the Treasury’s bank rescue fund, lost 6.3percent after it was cut to “sell” from “hold” by EVADimensions.
Harris Corp. advanced 7.2 percent to $39.88 for the second-biggest gain in the S&P 500. The maker of military radios wasawarded a $419 million contract for the U.S. Army for multibandradio systems. The initial delivery order under the contract isvalued at $165 million, Harris said.
Estée Lauder, ICE
Estée Lauder Cos. rose 5.1 percent to $41.11. The maker ofClinique and Bobbi Brown cosmetics said first-quarter earningswill be significantly higher than previously forecast because ofbetter-than-anticipated sales.
Intercontinental Exchange Inc. gained the most in the S&P500, adding 7.7 percent to $105.84. The owner of the largestcredit-default swap clearinghouse and CME Group Inc. wereupgraded to “outperform” from “market perform” at Keefe,Bruyette & Woods Inc.
An analyst at Quantitative Analysis Service said the rallyin U.S. stocks will last for another six to nine months, while astrategist at AMP Capital Markets said the S&P 500 may be duefor a “stiff” slump as it approaches a resistance level.
Technical Analysis
QAS’s gauge of demand for stocks has risen every monthsince March. While it’s still negative, indicating demand forstocks falls short of supply, it may turn positive next month,the firm’s senior vice president, Kenneth Tower, said. The so-called demand-supply differential began to fall about threemonths before the S&P 500 started plunging as much as 57 percentfrom a record in October 2007.
The S&P 500’s rebound from its March low brought it closeto 1,121.4, which represents the 50 percent retracement levelthat so-called Fibonacci analysts identify as a key resistancepoint, said Nader Naeimi, a strategist at AMP, which holdsassets worth $75 billion. The index is also diverging frommeasures of price and breadth momentum, pointing to a deeper“correction” than those that have occurred since the rallybegan, the strategist said. A correction is usually defined as adrop of at least 10 percent from a peak.
To contact the reporters on this story:Daniel Hauck in London at dhauck1@bloomberg.net;Sapna Maheshwari in New York at smaheshwar11@bloomberg.net.
Last Updated: October 16, 2009 16:43 EDTSource: Bloomberg
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