U.S. Stocks Fall, Preventing Longest Dow Streak of Weekly Gains Since 1995
U.S. stocks slid, preventing the longest stretch of weekly gains for the Dow Jones Industrial Average since 1995, as unrest in Egypt triggered the biggest one-day drop since November and overshadowed higher-than- projected earnings at companies from Intel Corp. to DuPont Co.
Ford Motor Co. and Amazon.com Inc. lost more than 3.5 percent after their earnings and forecast, respectively, missed estimates. American Express Co., Bank of America Corp. and Johnson & Johnson posted weekly losses exceeding 4.2 percent after protesters in Egypt challenged Hosni Mubarak’s 30-year presidency. Intel and DuPont climbed at least 3 percent.
The Dow lost 48.14 points, or 0.4 percent, to 11,823.70 this week, after twice rising above 12,000 for the first time since 2008. The Standard & Poor’s 500 Index decreased 0.6 percent to 1,276.34.
“We’ve enjoyed such a nice upside over the last month and a half that perhaps those who are long stocks might be a little bit more hypersensitive,” said Joe “JJ” Kinahan, the chief derivatives strategist at Omaha, Nebraska-based TD Ameritrade Holding Corp. “This is a healthy trade. A market that goes straight up is not necessarily a healthy market, but one that bounces its way up usually can lead to longer-term gains.”
The S&P 500 has surged 22 percent since Federal Reserve Chairman Ben S. Bernanke said Aug. 27 that he was prepared to take action to help the economy. The Fed last week maintained its plan to buy $600 billion in Treasuries to stimulate growth.
Echoes of April
Some technical indicators suggested that stocks are poised for a pullback. More than 80 percent of stocks traded above their 200-day moving average this week, according to Birinyi Associates Inc. The last time that many were so high was in April, before the S&P 500 began a decline in which it lost as much as 16 percent. A measure of the degree to which S&P 500 gains outpace losses, known as the relative strength index, jumped to 71.8 this week. The RSI exceeded 70 for five straight days through April 15, before the S&P 500 peaked.
The Dow was set for its longest weekly gaining streak since 1995 until yesterday, when the index slumped 1.4 percent after Mubarak implemented a curfew in Cairo, Suez and Alexandria and fighting between police and protesters broke out. The S&P 500 dropped 1.8 percent that day, with Ford and Amazon’s earnings also pulling stocks lower.
‘Priced for Perfection’
“Geopolitical concerns in the Middle East are weighing on sentiment,” said Ryan Larson, head of U.S. equity trading at RBC Global Asset Management Inc. The U.S. economic expansion is “coming at a slower pace than expected. The market has been priced for perfection for a while.”
Concerns about Egypt yesterday overshadowed a report showing the U.S. expanded 3.2 percent in the fourth quarter. Household purchases, about 70 percent of the economy, rose at a 4.4 percent pace, the most since the first quarter of 2006, signaling the world’s largest economy and consumers are recovering from the worst recession since World War II. New-home purchases in the U.S. also rose more than forecast last month, Commerce Department figures showed last week.
Ford, the second-largest U.S. automaker, slipped 9.4 percent last week to $16.27. The Dearborn, Michigan-based company’s fourth-quarter profit plunged 79 percent as its European unit had an unexpected loss and new models drove up its costs. Amazon.com, the largest online retailer, forecast first- quarter profit that may be lower than analysts predict.
American Express
American Express Co. fell 4.7 percent to $43.86. Excluding the fourth-quarter charge, the biggest credit-card issuer by purchases earned 94 cents a share, less than the average estimate of 96 cents by analysts in a Bloomberg survey.
Overall, companies in the S&P 500 also continued to post better-than-estimated earnings this season, with 136 of the 183 companies that have reported so far, or 74 percent, beating projections. Technology companies have exceeded forecasts by 16 percent, the highest of any other industry. A group of computer and software stocks advanced 0.6 percent this week, the third- best of 10 industries in the S&P 500.
Corning, the world’s biggest maker of glass for flat-panel televisions, rose 13 percent to $21.80 after it said fourth- quarter sales beat the average analyst estimate. Teradyne gained 18 percent to $16.23 after it forecast first-quarter profit would be higher than analysts estimate after the maker of testing equipment for electronics posted fourth-quarter results that surpassed projections.
Intel, the world’s largest chipmaker, added $10 billion to its buyback plan. The shares rose 3.1 percent, the most since the week of Nov. 5, to $21.46.
Earnings Are ‘Key’
“While sentiment plays an important factor in the short run, earnings are the key driver,” Wasif Latif, vice president of equity investment at USAA Investment Management Co., which oversees $46 billion in San Antonio, said in a Bloomberg Television interview. This “is not necessarily the season where the market is looking for top-line growth. If it’s coming that’s great, but generally speaking, as long as earnings are beating and margins are sustaining themselves, that’s been fine.”
While technology stocks have outperformed their profit estimates, stocks of companies that depend on the discretionary spending of Americans are disappointing analysts more than any other industry, missing earnings-per-share estimates by 11 percent so far this reporting season. In addition to Ford, D.R. Horton Inc., the second-largest U.S. homebuilder by stock-market value, reported a loss wider than analysts expected.
A group of discretionary stocks slid 1.7 percent, the second-most in the S&P 500, last week. Health-care shares dropped the most, shedding 1.8 percent.
Celgene Corp. fell 8.7 percent to $51.18 after results matched estimates. Johnson & Johnson, the maker of Rolaids and Tylenol, declined 4.2 percent to $60.01 after saying it anticipates “significant costs” and may order more recalls this year. Abbott Laboratories, maker of the rheumatoid arthritis drug Humira, retreated 5.1 percent to $45.49 after it said it will cut about 1,900 jobs as part of a restructuring.
Monster Worldwide Inc. and Tellabs Inc. slid after they announced forecasts that fell short of analysts’ projections. Monster lost 26 percent to $15.95, while Tellabs dropped 21 percent to $5.38.
To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net.
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.
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