S&P 500 Has Longest Drop Since May Amid Earnings Concern

U.S. Stocks Erase Gains
Traders work on the floor of the New York Stock Exchange. Photographer: Scott Eells/Bloomberg

U.S. stocks declined for a fourth day, giving the Standard & Poor’s 500 Index its longest losing streak since May, amid concern about corporate profits.

Technology and industrial shares, which are forecast to post the strongest second-quarter earnings growth in the S&P 500, slumped amid lower sales estimates at Applied Materials Inc. and Cummins Inc. Advanced Micro Devices Inc., a maker of processors for personal computers, plunged 11 percent after reporting an unexpected drop in revenue. Commodity shares fell as the euro dropped to a two-year low versus the U.S. dollar.

The S&P 500 decreased 0.8 percent to 1,341.47 at 4 p.m. New York time, dropping 2.4 percent in four days. The Dow Jones Industrial Average retreated 83.17 points, or 0.7 percent, to 12,653.12. Volume for exchange-listed stocks in the U.S. was 6.2 billion shares, 7.4 percent below the three-month average.

“The bigger concern is with the next few quarters,” said Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland. He spoke in a telephone interview. “Earnings disappointments suggest that we’re going to have not only weakness this quarter, but it’s likely to carry on.”

Concern about the outlook for corporate earnings helped the market reverse earlier gains. Profits for S&P 500 companies fell 1.8 percent in the second quarter, according to analyst estimates compiled by Bloomberg. That would be the first decline since 2009, even as revenue is forecast to rise 2.5 percent. Analysts project profit growth of 3.9 percent and 15 percent, respectively, in the third and fourth quarters of 2012.

Europe’s Crisis

Equities advanced earlier today as European governments will jump-start as much as 100 billion euros ($123 billion) in emergency loans to shore up Spain’s banks and may move the costs off the Spanish government’s balance sheet.

“The news out of Europe is another step in the right direction, but there’s a long way to go there,” said John Canally, an economist and investment strategist at LPL Financial Corp. in Boston. The firm oversees about $330 billion. “Then there’s the earnings season here. As always, the forecast matters a lot more than what actually happened.”

Eight out of 10 groups in the S&P 500 retreated today as industrial, commodity and technology shares lost at least 1.1 percent. The Morgan Stanley Cyclical Index of companies most-tied to the economy sank 1.6 percent. The Philadelphia Semiconductor Index slumped 2.3 percent.

AMD tumbled 11 percent, the most since September, to $4.99. Demand is being hurt by slower growth in China and a worsening economic climate in Europe. The chipmaker also suffers as consumers shun PCs in favor of tablets, which rely on semiconductors made by other companies.

Applied Materials

Applied Materials slumped 2.7 percent to $10.71. The chipmaking-equipment provider sliced its fiscal 2012 sales and profit forecasts amid weakness in Europe, China and the personal-computer market.

Cummins sank 8.9 percent, the most since August, to $86.91. The maker of truck engines reduced its revenue forecast as demand weakens and the economy slows. It said in a statement it expects 2012 revenue “to be in line with” the 2011 level, without specifying a figure. Cummins said in a Feb. 2 statement it projected 2012 revenue would rise 10 percent compared with 2011. Cummins had $18 billion in revenue last year.

Commodity shares slumped as a stronger U.S. dollar reduces the appeal of raw materials. Alcoa Inc., the first company in the Dow to report results, dropped 4.1 percent to $8.40 even after earnings and revenue beat analysts’ estimates.

No Surprises

“Earnings will be the driver of the market coming up,” said John Augustine, who helps manage $25 billion as chief market strategist at Cincinnati-based Fifth Third Bancorp. “It was a good start for Alcoa. I don’t expect the rest of the earnings season to surprise to the upside.”

Research In Motion Ltd. fell 5 percent to $7.29 as Chief Executive Officer Thorsten Heins struggled to reassure shareholders who gathered today at the company’s annual meeting. RIM has failed to keep up with Apple Inc. and Google Inc., and the release of its new BlackBerry 10 operating system -- a linchpin of its comeback plan -- has been delayed twice.

J.C. Penney Co. dropped 5.8 percent to $20.76. The company, which hired Apple Inc.’s retail chief to reinvent its strategy, fell after a Credit Suisse AG analyst said “poor messaging” and a slower consumer environment will impact the company’s second quarter.

MBIA Inc. plunged 9 percent to $9.66. The bond insurer said a regulator hasn’t decided whether to allow a unit that backed soured mortgage debt to make an interest payment on notes.

Joy Global

Joy Global Inc. tumbled 5.5 percent to $50.58, the lowest level since July 2010. Komatsu Ltd., the world’s second-biggest maker of dump trucks, has no plans to bid for Joy Global after studying the U.S. company, as there are few synergies to aid its foray into underground mining equipment.

For-profit college companies slumped, led by Bridgepoint Education Inc. after two analysts downgraded the company’s shares. A Bloomberg index of 13 for-profit college companies fell 3.2 percent. Bridgepoint tumbled 8.3 percent to $13.07, on top of a 34 percent slide yesterday after an accreditation application by its Ashford University unit was denied by a regional accreditor.

ASML Holding NV’s U.S. shares surged 8.5 percent to $52.57. Intel Corp., the largest semiconductor maker, agreed to invest as much as $4.1 billion in the Dutch company in an effort to shave two years from the time to adopt new production techniques.

Intel slumped 2.3 percent to $25.56.

Analyst Recommendation

Southwest Airlines Co. jumped 4.2 percent, the most in the S&P 500, to $9.63. The company was raised to buy from neutral at Sterne, Agee & Leach Inc. by equity analyst Jeffrey Kauffman. The 12-month share-price estimate is $15.

DuPont Co. added 0.4 percent to $47.65. The world’s largest producer of titanium dioxide said some reports overstated the “softness” in the market for the pigment used in paint.

Wolverine World Wide Inc. rallied 6.9 percent to $40.97. The owner of the Hush Puppies shoe brand advanced after reaffirming that full-year profit may top analysts’ estimates.

Reluctance among U.S. companies to push earnings estimates higher in the second quarter indicated the period’s results may be disappointing, according to Pierre Lapointe, Brockhouse & Cooper Inc.’s global macro strategist.

Only 19 companies made profit projections last month that beat analysts’ average estimate, according to data compiled by Bloomberg and summarized by Brockhouse in a July 5 report. The total was the lowest for any June since the figures were first compiled in 2000 and the second-lowest for any month after the 14 last September.

“Investors did not get many indications from companies on the strength of earnings,” Lapointe, who is based in Montreal, wrote with colleagues Alex Bellefleur and Frances Donald. “The risk is that we will get more earnings misses than usual.”

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