U.S. Stocks Drop on Higher Energy Prices, Chipmaker Downgrade

U.S. stocks slid, erasing last week’s advance, as escalating violence in Libya sent oil higher and chipmakers tumbled after Wells Fargo & Co. reduced its recommendation on the industry.

Intel Corp. (INTC), the world’s largest semiconductor company, slid 1.6 percent following Wells Fargo’s downgrade, while Micron Technology Inc. (MU) lost 5.2 percent. JDS Uniphase Corp. (JDSU) fell 6.9 percent, the most in the Standard & Poor’s 500 Index, after Ciena Corp. (CIEN)’s revenue forecast missed analysts’ estimates. Alcoa Inc. (AA), Intel Corp. and Hewlett-Packard Co. (HPQ) lost at least 1.4 percent to lead declines in the Dow Jones Industrial Average.

The S&P 500 slumped 0.8 percent to 1,310.13 at 4 p.m. in New York after climbing as much as 0.5 percent earlier and advancing 0.1 percent last week. The Dow declined 79.85 points, or 0.7 percent, to 12,090.03. Oil for April delivery surged as much as 2.4 percent at $106.95 a barrel.

“Geopolitical concerns and the price of oil are the major things driving the market,” said John Kattar, chief investment officer at Eastern Investment Advisors in Boston, which manages $1.7 billion. “It’s very volatile with the news flow being so dominated by the Middle East.”

The S&P 500 fell 0.7 percent on March 4, trimming a weekly advance, as the surge in oil fueled concern consumer spending may slow as Labor Department data showed average hourly earnings were unchanged last month.

Oil’s Advance

The S&P 500 has lost 2.5 percent from a 32-month high on Feb. 18 amid concern higher energy prices will hurt consumer spending and corporate profits. The index is still up 94 percent from its low of 676.53 on March 9, 2009, as improving corporate profits, government stimulus efforts and takeovers fueled confidence in equities.

Oil rose to a 29-month high as escalating violence in Libya bolstered concern that supply disruptions may spread through the Middle East. Crude climbed after fighting between Libyan rebels and troops loyal to Muammar Qaddafi intensified. Hedge funds raised purchases of futures to a record for a second week on speculation unrest will cut output further. Citigroup Inc. increased its Brent oil price estimate, saying the threat of more disruptions supports a “fear premium.”

Gains in stocks earlier today also followed the announcement of about $15 billion in potential global mergers and acquisitions.

“Companies have a lot of cash on their balance sheets and they’re under pressure to use it, whether it’s M&A, buybacks or dividends,” said Matt McCormick, a money manager at Cincinnati- based Bahl & Gaynor Inc., which oversees about $3.2 billion. “Investors are taking risk off now, and there’s rotation to higher-quality stocks, which may not be as impacted by geopolitical risks and higher commodity and energy costs.”

Chipmakers Tumble

A gauge of semiconductor stocks fell 2.5 percent, the most among 24 groups in the S&P 500, after Wells Fargo cut its industry rating to “market weight” from “overweight,” citing the 125 percent gain in the Philadelphia Semiconductor Index over the last two years. The downgrade “is more an indication of a more moderate though still optimistic view of the sector rather than any active concern about the chip stocks as a group.”

Intel dropped 1.6 percent to $21.21. Micron Technology lost 5.2 percent to $11.03. Broadcom Corp. (BRCM) slipped 3.1 percent to $40.74. Hewlett-Packard, the world’s largest computer maker, retreated 1.5 percent to $41.98.

Ciena dropped the most in the Russell 1000 Index, sliding 9.8 percent to $25.98. The maker of network gear for the biggest U.S. phone companies forecast second-quarter revenue of no more than $435 million, missing the average analyst estimate of $437.3 million.

JDS Uniphase, Cisco

JDS Uniphase, a competitor to Ciena, fell 6.9 percent to $25.49 for the biggest decline in the S&P 500. Cisco Systems Inc. (CSCO), the largest provider of networking equipment, retreated 1.1 percent $18.20.

An S&P 500 gauge of retailers, hotel chains and other companies reliant on consumer spending slumped 1 percent. Walt Disney helped lead the Dow lower, losing 1.2 percent to $43.02.

Western Digital Corp. (WDC) surged 16 percent to $34.68. The U.S. marker of hard-disk drives agreed to buy a rival unit of Hitachi Ltd. for about $4.3 billion in cash and stock.

To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net

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

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