U.S. Stocks Retreat After Cisco Misses Estimates; Disney Drops

Cisco CEO John Chambers
John Chambers, chief executive officer of Cisco Systems Inc. Photographer: Joshua Roberts/Bloomberg

U.S. stocks slid, with benchmark indexes falling for the third time this week, after Cisco Systems Inc. and Walt Disney Co. missed analyst estimates and concern over Europe’s debt crisis intensified.

Cisco, the sixth-largest U.S. technology company by market value, plunged 16 percent, the most since 1994. Hewlett-Packard Co. slumped 2.4 percent as technology stocks declined the most among 10 industries in the Standard & Poor’s 500 Index. Disney fell 2.9 percent. GameStop Corp. rallied 4.8 percent after the video-game retailer said it will add content to its digital catalog.

The S&P 500 dropped 0.4 percent to 1,213.54 at 4 p.m. in New York. The Nasdaq-100 Index, which gets 65 percent of its value from computer-related companies, lost 0.7 percent to 2,173.11. The Dow Jones Industrial Average fell 73.94 points, or 0.7 percent, to 11,283.10.

“With the weak forecast from Cisco, investors are obviously concerned about the technology spending environment,” said Ryan Bend, a money manager at Federated Investors’ Prudent Bear Fund, which manages about $1.9 billion. “Less appetite for risk globally accompanied with weak guidance from technology companies are giving people some pause here. The markets have had quite a run and people are a little bit nervous right now.”

Technology companies had led the 16 percent rally in the S&P 500 since the end of August, rising 23 percent as a group through yesterday for the biggest advance among 10 industries. Net income has grown 52 percent for technology firms that reported quarterly results since Oct. 7, trailing only financial companies among 10 groups.

Sixth Straight Quarter

Cisco tumbled 16 percent to $20.52. The company said fiscal second-quarter profit excluding some items will range between 32 cents and 35 cents a share, less than the average analyst estimate of 42 cents, according to data compiled by Bloomberg. Sales will amount to about $10.1 billion to $10.3 billion, while analysts projected $11.1 billion.

The projection from Cisco, the world’s largest producer of computer-networking equipment, tempered enthusiasm about corporate earnings driven by more than 70 percent of S&P 500 companies beating the average profit estimate for a record sixth straight quarter. Quarterly results and the Federal Reserve’s $600 billion attempt to spur economic growth in the world’s biggest economy helped produce the biggest September-and-October U.S. stocks rally since 1998.


Cisco faced a “challenging economic environment” last quarter, Chief Executive Officer John Chambers said. He blamed the slump on lower government spending in developed countries and market-share losses.

Technology stocks fell 1.8 percent today, the most among 10 groups in the S&P 500. Hewlett-Packard slid 2.4 percent to $43.10.

Disney lost 2.9 percent to $35.93. The world’s biggest media company reported fiscal fourth-quarter profit excluding some items of 45 cents, missing the average analyst estimate of 47 cents, according to data compiled by Bloomberg. The company posted the earnings statement on its website before the close of U.S. exchanges.

“Like Cisco, Disney is the kind of company that’s held to high regard, and they basically disappointed,” said Jason Cooper, who oversees $2.5 billion in South Bend, Indiana, at 1st Source Investment Advisors. The firm owns Disney shares. “We had such negative news today it probably didn’t matter who you were, if you had any kind of miss or blip, you were going to get punished. This will probably continue to add negative pressure when we see stocks open tomorrow.”

Portugal, Spain

U.S. stocks fell as Portuguese and Spanish government bonds declined on mounting concern that nations on Europe’s periphery will be forced to restructure their debt. The yield on Irish 10-year securities surged to a record 6.52 percentage points over benchmark German bunds.

The S&P 500 almost erased yesterday’s gain and is down 1 percent from a two-year high reached Nov. 5. Shares rallied last week after the Fed announced plans to buy $600 billion in Treasuries and as elections resulted in a divided Congress that’s unlikely to pass further business reforms. Boeing Co. fell 2.5 percent to $65.37, the lowest intraday price since Sept. 28 and the third-biggest decline in the Dow. Boeing should know “fairly quickly” whether this week’s fire during a test flight of a 787 Dreamliner will affect the jet’s entry into service, already almost three years late, Chief Executive Officer Jim McNerney said today. All six test jets have been grounded indefinitely while the company analyzes the data from the Nov. 9 emergency landing in Texas.

GameStop rallied 4.8 percent to $21.10, the biggest gain in the S&P 500. The Grapevine, Texas-based company said in a statement it will add content from Sony Corp. to its catalog of products available through digital downloads.

H&R Block Inc. advanced 4.4 percent to $12.80. The largest U.S. tax preparer said while its lawsuit is pending with its refund-anticipation loan provider, the parties are in talks trying to settle the litigation to confirm the availability of settlement products.


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