U.S. Stocks Retreat on Microsoft, Alcoa Ratings Cuts, Economy

(Corrects phrasing of quote in 14th paragraph.)

U.S. stocks fell, sending the Dow Jones Industrial Average to its biggest drop in almost a month, as analyst rating cuts of companies including Microsoft Corp. and Macy’s Inc. triggered caution before the start of the earnings season.

Microsoft slumped 1.9 percent after Goldman Sachs Group Inc. removed its “buy” rating on the shares, citing the company’s struggle to gain market share in mobile devices, while Macy’s fell 1.7 percent after Goldman lowered the department- store chain to “neutral.” Alcoa Inc., the aluminum company that will unofficially start the earnings season on Oct. 7, lost 2.5 percent as Deutsche Bank AG advised selling the shares.

The Standard & Poor’s 500 Index slipped 0.8 percent to 1,137.03 at the 4 p.m. close in New York. The Dow declined 78.41 points, or 0.7 percent, to 10,751.27 for its biggest retreat since Sept. 7.

“There’s some fear the soft patches we hit in the economy over the summer are going to be reflected in corporate earnings,” said Art Hogan, chief market analyst at New York- based Jefferies Group Inc. “That’s where we’re getting some of the caution that’s manifested today. We had a great September and people are nervous we’re coming into an earnings season with irrational exuberance.”

Photographer: Daniel Acker/Bloomberg

Microsoft lost 2.3 percent to $23.81 as Goldman Sachs cut the stock to "neutral" from "buy." Close

Microsoft lost 2.3 percent to $23.81 as Goldman Sachs cut the stock to "neutral" from "buy."

Photographer: Daniel Acker/Bloomberg

Microsoft lost 2.3 percent to $23.81 as Goldman Sachs cut the stock to "neutral" from "buy."

Analysts are cutting forecasts for S&P 500 earnings for the first time in more than a year, jeopardizing gains from the biggest September rally since World War II. Estimates for S&P 500 companies’ combined 2011 profit fell to as low as $95.17 a share last month from an August high of $96.16 and booked the first quarterly reduction since the three months ended June 2009, according to forecasts tracked by Bloomberg.

Microsoft, Macy’s

The revision came even as the benchmark gauge for U.S. equities rose 8.8 percent last month, the largest September advance since 1939, amid speculation the nation will avoid slipping back into another recession as the Federal Reserve pledges to safeguard the recovery.

Microsoft lost 1.9 percent to $23.91 as Goldman Sachs cut the stock to “neutral” from “buy.” The brokerage cited Microsoft’s failure to win the same market share in mobile devices that it holds in PCs. Goldman’s analyst Sarah Friar in a report dated yesterday cited concern customers are taking longer to replace personal computers and competition from tablets running non-Microsoft software.

Macy’s declined 1.7 percent to $22.76, after falling as much as 4.9 percent, the most intraday since July 16. The second-largest department store chain in the U.S. was cut to “neutral” from “buy” at Goldman Sachs.

Alcoa Slips

Alcoa, the biggest U.S. aluminum producer, dropped 2.5 percent to $11.92 after Deutsche Bank added the shares to its short-term sell list. Raw-material producers had the biggest decline out of 10 groups in the S&P 500, slipping 1.4 percent.

All 10 industry groups in the S&P 500 declined today. Energy companies had the third-biggest drop, as Schlumberger Ltd. slumped 2 percent to $61.20 and Constellation Energy Group Inc. declined 3.6 percent to $31.25.

Brian Sack, the Federal Reserve Bank of New York’s markets group chief, said in a text of remarks today that a further expansion of the central bank’s balance sheet would help stimulate an economic recovery that is forecast to be “relatively tepid.” Policy makers are debating how to deploy stimulus after the Fed’s policy committee said on Sept. 21 that it’s prepared to take action “if needed” to spur growth and achieve its mandate of stable prices and full employment.

Economy Watch

Benchmark equity indexes fluctuated in early trading after reports on home sales and factory orders. The National Association of Realtors’ index of pending home resales rose 4.3 percent in August, more than forecast. Compared with the same month a year ago, pending sales were down 18.4 percent.

The U.S. needs to get the housing market working again to spur economic growth, said Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., on Bloomberg Television’s “Surveillance Midday” with Tom Keene.

“If we do not have the housing market functioning again, the consumer will continue to be under this gravitational force of the debt overhang and it’s going to be very difficult to get high growth generated,” El-Erian said.

Orders for non-military U.S. capital goods excluding planes increased 5.1 percent, the biggest gain since March and exceeding the 4.1 percent estimated last month, figures from the Commerce Department showed. The 0.5 percent decrease in total bookings compared with a 0.4 percent drop projected by the median forecast of economists in a Bloomberg News survey.

‘Two Steps Back’

“The economic data has been mixed over the last few months, taking three steps forward, two steps back,” said David Katz, chief investment officer at Matrix Asset Advisors Inc. in New York, which manages $1.1 billion. “Investors are looking ahead and focused on earnings.”

Analysts forecast that earnings grew 23 percent in the third quarter for S&P 500 companies and will increase another 31 percent in the final three months of the year, according to data compiled by Bloomberg. Financial companies are projected to lead third-quarter growth, with a 45 percent increase in earnings.

American Express Co. slid 6.5 percent to $39.05, its biggest plunge since January, as the credit card company vowed to fight a U.S. Justice Department antitrust lawsuit that Visa Inc. and MasterCard Inc. settled. The department sued the three credit-card networks, saying restraints “impose a competitive straightjacket on merchants, restricting decisions by them to offer discounts, benefits and choices to customers that many merchants would otherwise be free to offer.”

Lexmark International Inc. dropped 3.3 percent to $43.60. The maker of laser and inkjet printers was downgraded to “equal weight” from “overweight” at Barclays Capital with a $47 price estimate.

Casino Rally

Casino companies rose after revenue in Macau, the world’s biggest gambling hub, surged 40 percent in September, meeting estimates from Macquarie Group Ltd. Wynn Resorts Ltd. gained 3.9 percent to $90.51, the third-biggest advance in the S&P 500, and Las Vegas Sands Corp. climbed 3.6 percent to $36.44.

Sara Lee Corp. rallied 7.2 percent to $14.40 after rising as much as 13 percent, the most intraday since October 2008. The maker of Jimmy Dean breakfast foods rejected a $12 billion leveraged buyout offer by KKR & Co., according to the New York Post, which cited a person familiar with the situation.

Ford Motor Co. jumped 4.7 percent to $12.84. The automaker was rated “overweight” in new coverage by Morgan Stanley, which said the company’s revenue outlook is underestimated and that it will likely regain an investment-grade debt rating.

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.