Most U.S. Stocks Drop on Valuations, Egypt Riots; Broadcom Shares Tumble

Most U.S. stocks fell, with the Standard & Poor’s 500 Index dropping from near its highest valuation since June, as earnings reports from companies including Broadcom Corp. and Aflac Inc. disappointed investors and anti-government protests in Egypt worsened.

Broadcom slumped 5.6 percent after the biggest maker of chips for television set-top boxes reported margins that missed analysts’ estimates. Aflac, the world’s largest seller of supplemental health insurance, dropped 2.4 percent as operating income trailed forecasts. Electronic Arts Inc., the second- biggest U.S. video-game maker, jumped 16 percent and Time Warner Inc. rose 8.6 percent after profits beat projections.

About four stocks declined for every three that rose on U.S. exchanges. The S&P 500 retreated 0.3 percent to 1,304.02 at 4 p.m. in New York after yesterday reaching a level that was 15.7 times its companies’ reported operating income. The Dow Jones Industrial Average advanced 1.81 points, or less than 0.1 percent, to 12,041.97.

“You need to be somewhat skeptical at this stage,” said Michael Nasto, senior trader at U.S. Global Investors Inc., which manages about $3 billion in San Antonio. “We’ve had a very sharp stock rally. It’s not surprising that we see the market moving either sideways or lower. There’s concern about geopolitical risks. There’s been improvement in both economic data and earnings. However, you’d need to see stronger figures to push stocks higher.”

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Photographer: Tim Boyle/Bloomberg

A trader signals an order in the S&P 500 pit on the floor of the CME Group's Chicago Board of Trade in Chicago.

Earnings

U.S. stocks rose yesterday, pushing the Dow to its first close above 12,000 since June 2008, after American and Chinese manufacturing expanded and United Parcel Service Inc. beat analysts’ earnings estimates. About 72 percent of the 226 companies in the S&P 500 that reported results since Jan. 10 topped earnings-per-share projections, according to data compiled by Bloomberg.

Political turmoil is spreading throughout the Middle East, helping send Brent crude oil above $100 a barrel this week. The cost of insuring sovereign debt of Egypt rose 40 basis points to 382, according to CMA prices for credit-default swaps.

“There is a real risk that it will spill over” into the economy, said Joseph Stiglitz, a 2001 Nobel laureate and an economics professor at Columbia University in New York, in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “It’s only when the oil exports get affected that the effect will become very significant.”

Oil

Oil prices at current levels will increase airline costs by more than this year’s projected earnings, threatening the industry’s return to profitability, the International Air Transport Association said. The IATA on Dec. 14 forecast carriers would log net income of $9.1 billion in 2011 based on oil at $84 a barrel. With crude trading $7 higher than that and every $1 increase boosting the fuel bill by $1.6 billion, costs could increase by $11 billion.

The NYSE Arca Airline Index lost 2.5 percent. Delta Air Lines Inc. retreated 3.7 percent to $11.35. AMR Corp. slumped 2.1 percent to $7.03.

Broadcom lost 5.6 percent to $43.80. Fourth-quarter gross margin -- the percentage of sales left after subtracting production costs -- was 50.9 percent. That compared with the 51.6 percent average analyst estimate compiled by Bloomberg.

Aflac dropped 2.4 percent to $57.10. Operating income, which excludes some investment results, was $1.33 a share in the fourth quarter, missing the average estimate of $1.35 from analysts. Realized investment losses were $191 million in the fourth quarter, compared with $307 million a year earlier.

Genworth

Genworth Financial Inc. declined 8.5 percent to $12.76. The mortgage guarantor and life insurer swung to a fourth-quarter loss on $350 million in costs tied to backing home loans as fewer borrowers return to compliance. The operating loss, which excludes some investment results, was 28 cents a share, missing the average analyst estimate for a 16-cent profit.

Companies in the U.S. added more workers than forecast to payrolls in January, data from a private report showed today. Employment rose 187,000 last month after a revised 247,000 gain in December that was less than initially estimated, according to figures from ADP Employer Services. The median estimate in the Bloomberg News survey called for a 140,000 gain last month.

The ADP report is “roughly equivalent to the level recorded in January 2004, which was two months before the explosive March 2004 non-farm payroll release that proved a turning point in the monetary policy conducted” by Federal Reserve Chairman Alan Greenspan, Michael Shaoul, whose $415.7 million Marketfield Fund Ltd. outperformed 86 percent of rivals in 2010, wrote in an e-mail to clients.

The U.S. economy added a revised 338,000 jobs in March 2004, the most since 2000. Nonfarm payrolls increased 140,000 last month, according to the median economist forecast in a Bloomberg survey before the Labor Department report on Feb. 4.

Electronic Arts

Electronic Arts gained 16 percent to $18.09. Third-quarter profit increased to 59 cents a share, excluding some items, exceeding the average 56-cent average estimate analysts in a survey. Sales, excluding changes in deferred revenue, came to $1.41 billion, compared with the $1.43 billion average estimate of analysts.

Time Warner gained 8.6 percent to $35.10. Fourth-quarter profit, excluding some items, rose to 67 cents a share, topping the 62-cent average of estimates compiled by Bloomberg. Time Warner increased its dividend 11 percent and boosted its share- buyback program by $4 billion, according to a statement from the New York-based company today.

MEMC Electronic Materials Inc. gained 15 percent to $13.42. The maker of wafers for the semiconductor and solar industries forecast 2011 earnings may be as high as $1.30 a share, compared with the average analyst estimate of $1.01.

“We’re participating but not afraid to hunker down,” said Scott Armiger, portfolio manager at Christiana Trust in Greenville, Delaware, which has $6.8 billion in client assets. “The stock market had been overreacting on the good news and underreacting on the bad news. That explains the huge run-up that we’ve had. Earnings reports were good with occasional misses. I’m cautiously optimistic on stocks.”

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net.

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

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