U.S. Stocks Retreat as Bank of America, GE Trail Projections

GE slipped 1.1 percent
General Electric Co. chief executive officer Jeffrey Immelt. Photographer: Aaron M. Sprecher/Bloomberg

U.S. stocks slid, wiping out a weekly advance, as revenue at Bank of America Corp., Citigroup Inc. and General Electric Co. missed analyst estimates and a gauge of consumer confidence slid to the lowest in a year.

Bank of America tumbled 9.2 percent, the most since June 2009, while Citigroup retreated 6.3 percent and GE lost 4.6 percent. Google Inc. sank 7 percent after earnings trailed the average analyst estimate following a surge in spending. Goldman Sachs Group Inc., the most profitable firm in Wall Street history, rallied 0.7 percent after agreeing to pay $550 million and change its business practices to settle federal government claims it misled investors.

The Standard & Poor’s 500 Index plunged 2.9 percent to 1,064.88 at 4 p.m. in New York, the biggest drop this month. It fell 1.2 percent this week, erasing its gain as the Thomson Reuters/University of Michigan index of consumer sentiment fell more than economists estimated. The Dow Jones Industrial Average lost 261.41 points, or 2.5 percent, to 10,097.90 today.

“Companies have been exceeding or meeting earnings expectations on cost cuts, not on demand for their products and services,” said Terry Morris, who manages $2 billion at National Penn Investors Trust Co. in Wyomissing, Pennsylvania. “I think the market is pricing in more than we’re going to see” in the way of revenue growth.

Beating Estimates

The S&P 500 climbed 7.2 percent from July 2 through yesterday amid optimism that corporate earnings would signal the economic recovery is sustainable. S&P 500 companies are projected to increase profits by 34 percent in 2010 and 18 percent in 2011, the fastest two-year gain since 1995, according to analyst estimates compiled by Bloomberg. Of the 23 companies in the S&P 500 that reported since July 12, all but three have topped forecasts for earnings-per-share, Bloomberg data show.

Revenue for the group that has reported so far has increased 2.6 percent, with 17 of 23 companies beating analyst estimates, according to the data.

Bank of America, the largest U.S. bank by assets, slid 9.2 percent to $13.98 to lead financial companies to the biggest decline among 10 industry groups in the S&P 500. Citigroup, the third-biggest, retreated 6.3 percent to $3.90. GE, the world’s largest maker of jet engines and power-plant turbines, fell 4.6 percent to $14.55. The three companies beat analyst estimates for per-share earnings while missing on sales.

“Revenue is more of a challenge when the economy’s not growing very fast,” said Robert Lutts, president of Cabot Money Management in Salem, Massachusetts, which oversees $500 million. “I’m more impressed that there’s been no real extreme negative future guidance.”

‘Set the Stage’

Visa Inc. and MasterCard Inc., the biggest payments networks, declined after Bank of America forecast a drop in debit-card revenue because of new federal regulations. Visa fell 5.1 percent to $71.45. MasterCard dropped 6.9 percent to $197.22.

“We’re seeing improvement in the credit metrics of the major banks,” said Matthew Kaufler, a money manager at Federated Clover Investment Advisors in Rochester, New York, which manages $3 billion. “When they become more confident in themselves and begin to lend again, that will start to set the stage for a more robust economy.”

Google, owner of the world’s most popular search engine, fell 7 percent to $459.61. Profit missed the average analyst estimate as the company ramped up spending to take on social-networking sites such as Facebook Inc. It was the first time in two years the world’s fourth-biggest technology company by market capitalization trailed forecasts.

Goldman Settlement

Goldman Sachs rose 0.7 percent to $146.17, paring an advance of as much as 4.7 percent as the market extended declines. The stock surged 4.4 percent yesterday on speculation the company would announce a settlement with the Securities and Exchange Commission. Goldman Sachs shares fell as much as 18 percent in the three months after being sued by the SEC on April 16 in connection with its marketing of collateralized debt obligations linked to subprime mortgages.

The largest penalty ever levied by the SEC against a Wall Street firm amounts to 14 days of earnings, based on Goldman Sachs’s first-quarter results. It’s the equivalent of 93 cents a share, said Brad Hintz, an analyst at Sanford Bernstein & Co., who had estimated a cost of $1.05.

The two-year Treasury note’s yield sank to a record low below 0.58 percent on expectations sluggish economic activity will contain inflation and keep the Federal Reserve from raising interest rates. The consumer sentiment index decreased to a preliminary 66.5 for July, the lowest since August 2009, from 76 in June. The reading was lower than the most pessimistic forecast of economists in a Bloomberg News survey with a median projection of 74.

Schwab Rallies

Charles Schwab Corp. rose the most in the S&P 500, climbing 4.1 percent to $15.14. The largest independent brokerage by client assets reported second-quarter profit that beat the average analyst estimate as revenue from earned interest offset a drop in trading.

Gannett Co. dropped 11 percent to $13.50 for the biggest drop in the index. The owner of USA Today and television stations said second-quarter revenue fell to $1.37 billion, missing the $1.39 billion average analyst forecast. Revenue at Gannett has declined for the past three years. New York Times Co. slid 8.1 percent to $8.80.

Mattel Inc. fell 9.5 percent to $20.81. The world’s largest toymaker posted second-quarter profit of 14 cents a share, missing the average analyst estimate of 15 cents.

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