U.S. Stocks, Oil Retreat, While Microsoft, Amazon.com Rally
Share | Email | Print | A A A
By Elizabeth Stanton
Oct. 23 (Bloomberg) -- U.S. stocks fell, wiping out a weekly gain for the Standard & Poor’s 500 Index, as a drop in oil weighed on energy producers and disappointing results at the nation’s largest railroad dragged down industrial shares.
Exxon Mobil Corp. and Schlumberger Ltd. led energy shares lower after crude slid for a second day as the dollar rebounded. Industrial shares in the S&P 500 lost 1.7 percent as a group, led by railroad stocks, after Burlington Northern Santa Fe Corp. forecast profit below analyst estimates. Technology shares posted the smallest drop among 10 groups as Microsoft Corp. and Amazon.com Inc. surged on better-than-estimated earnings.
The S&P 500 dropped 1.2 percent to 1,079.6 at 4:03 p.m. in New York. The main benchmark for American equities slipped 0.7 percent this week after closing at a one-year high on Oct. 19. The Dow Jones Industrial Average tumbled 109.13 points, or 1.1 percent, to 9,972.18. The Nasdaq Composite slipped 0.5 percent to 2,154.47.
“I’m watching truckers and railroads for signs the economy is improving, and we didn’t get that,” said John Massey, a money manager at SunAmerica Asset Management Corp. in Jersey City, New Jersey. “There’s not a lot of confidence in volumes improving next year.”
The S&P 500 opened the session trading at almost 21 times the reported operating earnings of its companies, the highest valuation in more than five years. The index has climbed 60 percent from a 12-year low on March 9 as the U.S. lent, spent or guaranteed $11.6 trillion to combat the worst recession since the 1930s.
Earnings Season
All but 20 of the 138 companies in the S&P 500 that reported third-quarter results this week beat the average analyst estimate, including Apple Inc., Caterpillar Inc. and Morgan Stanley, according to data compiled by Bloomberg. Still, per-share profits were down 19 percent from the year-earlier period for the group, adding to a record eight straight quarters of earnings declines. Analysts expect profits to rise in the fourth quarter.
Since the start of the third-quarter earnings season, 80 percent of the companies in the S&P 500 that released results have reported better-than-estimated profits, according to Bloomberg data. There’s not a higher proportion in data going back to 1993.
“You have this skepticism in the equity market that is frankly irrational,” said Richard Campagna, chief executive officer of 300 North Capital LLC in Pasadena, California, which manages $600 million. “Given that the third quarter was the tail end of the recession and earnings are this good tells you earnings are going to snap back much faster than people expect.”
Fed Watch
Stocks may rise further as long as the Federal Reserve continues to signal it intends to keep interest rates low, Campagna said. Articles in the Financial Times and Wall Street Journal today said central bank officials have begun to consider how and when to prepare investors for higher rates. The Fed’s benchmark lending rate has been at a record low range of 0 to 0.25 percent since December.
Exxon, the largest oil producer, slumped 1.2 percent to $73.57. Schlumberger, the biggest oilfield-services company, sank 5 percent to $65.20.
Crude for December delivery fell 69 cents to $80.50 a barrel in New York Mercantile Exchange trading. Futures are up 80 percent this year and touched a one-year high of $82 a barrel on Oct. 21.
Dollar Rebounds
The dollar strengthened against the yen to the strongest level in a month and gained versus most actively traded currencies on speculation the Fed will increase interest rates sooner than forecast.
Burlington Northern Santa Fe lost 6.5 percent to $79.12, leading transportation companies in the S&P 500 to a 3.8 percent decline. The largest U.S. railroad forecast fourth-quarter profit of $1.20 a share at most, trailing the average analyst estimate of $1.36 in a Bloomberg survey.
Union Pacific Corp., the second-largest U.S. railroad by revenue, yesterday said it won’t have more than “slightly” increased freight volume next year. Its shares slumped 5.6 percent to $57.73.
Microsoft climbed 5.4 percent to $28.02, a 14-month high. The world’s largest software maker posted a smaller drop in profit than analysts estimated after slashing costs to make up for falling sales.
Amazon.com soared 27 percent, the most in more than two years, to a record $118.49 for the biggest gain in the S&P 500. Third-quarter net income increased 69 percent after discounts and the Kindle electronic book reader fueled sales.
‘Very Encouraging’
“In what is still a relatively difficult but clearly improving economic environment, you’re seeing very impressive corporate management,” said Rod Smyth, chief investment strategist at Riverfront Investment Group in Richmond, Virginia. “If you look at all three times when the market’s had the nicest advances this year, they’ve all come during earnings season. I think that’s very encouraging.”
MEMC Electronic Materials Inc. dropped the most in the S&P 500, falling 10 percent to $13.87. The maker of silicon wafers for solar modules and semiconductors posted a greater-than- estimated third-quarter loss on costs to close two plants in Texas and Missouri and repair equipment at another.
CA Inc. slid 9.6 percent to $21.61. The second-largest maker of software for mainframe computers said bookings tumbled 37 percent from a year earlier in the fiscal second quarter.
Broadcom Corp. lost 7.3 percent to $28.50. The maker of semiconductors for wireless headsets and television set-top boxes said sales will be little changed in the fourth quarter from the previous period.
To contact the reporter on this story: Elizabeth Stanton in New York at [email protected]
