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U.S. Stocks Drop, Trimming Biggest S&P 500 Monthly Rally Since July 2009

U.S. stocks fell this week, trimming the biggest monthly rally for the Standard & Poor’s 500 Index in a year, after economic reports and earnings forecasts from technology companies disappointed investors.

Akamai Technologies Inc. and Symantec Corp. dragged technology companies in the benchmark gauge for U.S. equities to a 1.6 percent loss, the most among 10 industries. Wal-Mart Stores Inc. lost 0.9 percent, helping lead declines among retailers, as economic growth slowed in the second quarter and confidence among consumers retreated to a five-month low. DuPont Co. rallied 6.1 percent after raising its full-year earnings forecast amid improving global demand.

The S&P 500 fell 0.1 percent to 1,101.60, limiting its July advance to 6.9 percent. It was the first monthly gain since April, following the combined 13 percent retreat in May and June. The Dow Jones Industrial Average advanced 41.32 points, or 0.4 percent, to 10,465.94.

“We’re seeing headwinds from the economy and there’s a decline in the visibility about future earnings,” said Lawrence Creatura, a Rochester, New York-based fund manager at Federated Investors Inc., which oversees $337 billion. “Stocks are following our expectations for the economy, so the market is yo- yoing up and down as we get a wave of government stimulus which then recedes.”

Economic Harbinger

Stocks surged on July 26 after shipping company FedEx Corp., considered a harbinger for global growth, boosted its profit forecast. That was followed by three days of losses for the S&P 500 as consumer confidence slumped more than forecast.

The S&P 500 rallied in July after more than 77 percent of companies in the index exceeded the average analyst profit estimate since July 12, data compiled by Bloomberg show. Earnings will rise 35 percent for the entire measure this year, the most since 1988, analyst forecasts show. Following the 2001 recession, income growth never surpassed 20 percent. The Dow has posted a 0.4 percent gain for the year, reversing a loss of as much as 7.1 percent on July 2.

“We’ve had a nice run,” said Mark Dow, who helps manage $3 billion at Pharo Management LLC in New York. “Positioning in the market is very light because guys got shaken out in May and June. People look out over the horizon and say, ‘I haven’t made any money. I have to start making money.’”

MasterCard Inc., Pfizer Inc. and Procter & Gamble Co. are among 110 companies in the S&P 500 scheduled to report quarterly results next week.

Faster Websites

Technology stocks declined as companies such as Akamai Technologies reported quarterly results that fell short of investors’ expectations. Akamai, the largest supplier of software to make websites and digital media load faster, plunged 15 percent to $38.36 after its profit margin shrank as it added business from customers like Netflix Inc. at lower prices.

Symantec forecast second-quarter sales and profit that missed analysts’ estimates, citing weakness in the euro and “cautiousness” among customers. The world’s largest maker of computer security software fell 15 percent to $12.97.

Chipmakers declined after LSI Corp. said third-quarter sales will be no more than $655 million, compared with the $694.9 million average analyst estimate in a Bloomberg survey. The maker of chips used in computer disk drives lost 17 percent to $4.03. Intel Corp., whose chips run more than 80 percent of the world’s personal computers, tumbled 5 percent to $20.60 for the biggest retreat in the Dow.

Apple Inc., which makes iPhones and iPads, slipped 1 percent to $257.25.

IPad, IPhone

“The only product that seems to be in demand is an iPad or an iPhone, and that’s only for the select few,” said Tim Hartzell, who manages $300 million as chief investment officer for Houston-based Sequent Asset Management. “I don’t know anybody who wants to spend the money on new computers because we don’t see the additional sales coming through the door to warrant the expansion.”

Oracle Corp. fell 3.5 percent to $23.64 as the federal government filed a complaint under the False Claims Act against the company and Oracle America Inc., alleging that it defrauded the U.S. on a General Services Administration software contract that was in effect from 1998 to 2006 and involved hundreds of millions of dollars in sales.

Consumer stocks slipped after reports showed confidence among U.S. consumers declined in July, a sign the lack of jobs will limit the economy’s recovery, and gross domestic product growth at a 2.4 percent annual pace, less than forecast.

‘Very Weak Demand’

“We were disappointed by the GDP number,” Hartzell said. “There’s very weak demand in America, a lot have lost their job or gotten a wage decline, and we just don’t see how the market stays up without strong aggregate demand.”

Wal-Mart, the world’s largest retailer, declined 0.9 percent to $51.19. Colgate-Palmolive Co., the world’s largest toothpaste maker, sank 5.4 percent to $78.98, the biggest weekly decline since March 2009, after sales missed analysts’ estimates and the company said Venezuela’s currency devaluation would further cut 2010 profit.

DuPont surged 6.1 percent to $40.67 for the biggest gain in the Dow. It reported profit that beat analysts’ estimates as the third-biggest U.S. chemical maker boosted output on rising demand around the world and across the company’s businesses, including auto paints and plastics, crop seeds and materials used to harness solar power.

FedEx rose 4.6 percent to $82.55 after boosting its profit forecast for the quarter and full year, exceeding analysts’ estimates, on rising demand for international express shipments.

To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net.

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