U.S. Stocks Decline Amid Debt Concerns, Profit Forecast From 3M
U.S. stocks fell for a second day amid wrangling between lawmakers over plans to raise the federal debt limit and forecasts from 3M (MMM) Co. and United Parcel Service Inc. (UPS) that disappointed investors.
3M lost 5.4 percent, the most in the Dow Jones Industrial Average (INDU), after projecting full-year earnings that trailed analysts’ estimates. UPS, the world’s largest package-delivery company, dropped 3.3 percent after saying the third quarter will be “fairly slow.” AK Steel Holding Corp. (AKS) tumbled 17 percent, the most since 2008, as the steelmaker’s profit missed the average analyst estimate. Lexmark International Inc. (LXK) rose 18 percent after reporting better-than-estimated earnings.
The S&P 500, which rallied 2.2 percent last week, dropped 0.4 percent to 1,331.94 at 4 p.m. in New York. The Dow lost 91.50 points, or 0.7 percent, to 12,501.30.
“We have multiple sources of uncertainty, including what’s happening in Washington with the debt ceiling,” Mark Freeman, co-chief investment officer at Westwood Management Corp. in Dallas, said in a telephone interview. His firm oversees $14 billion. “The longer the uncertainty goes on, the greater the risk is that it will negatively affect businesses.”
Negotiations over the nation’s debt limit have whipsawed stocks. Republicans and Democrats are sparring over separate plans to raise the federal debt limit and avoid a government default. House Speaker John Boehner said today his debt-limit plan can pass both chambers of Congress. President Barack Obama’s administration threatened a presidential veto of the two-step plan to raise the debt ceiling and cut $3 trillion in government spending.
‘Layers of the Onion’
Obama, in an address last night from the White House, said he remains confident that the stalemate can be resolved if both sides compromise. Both S&P and Moody’s Investors Service are weighing a downgrade of the U.S. credit rating.
“The uncertainty over the debt ceiling issue is pushing the market down,” Sandy Villere III, who helps manage the Villere Balanced Fund at New Orleans-based St. Denis J. Villere & Co., said in a telephone interview. The firm oversees $1.5 billion and the fund has beat 97 percent of peers in the past five years. “But people will eventually peel off the layers of the onion and look at the good earnings that are still being produced.”
The S&P 500 (SPX) rallied last week, erasing 81 percent of its loss since April 29 as Europe pledged support for Greece to end the region’s debt crisis and corporate profits topped analysts’ estimates. Since July 11, about 80 percent of S&P 500 companies that have released quarterly results beat projections, according to data compiled by Bloomberg.
3M, UPS Tumble
Industrial shares led losses among eight of the 10 main groups in the S&P 500 today, falling 1.9 percent. 3M dropped 5.4 percent to $89.93 after the maker of Post-It Notes projected 2011 earnings that fell short of analysts estimates as lower demand for LCD televisions curbed sales in its display and graphics business, the company’s third-biggest unit.
UPS, a bellwether of the economy that handles goods ranging from financial documents to pharmaceuticals and industrial parts, tumbled 3.3 percent to $71.59 after saying in a conference call that the third quarter will be “fairly slow” before demand picks up in the last three months of 2011.
Equities pared losses as a report showed confidence among consumers unexpectedly rose in July from an eight-month low, led by a rebound in the outlook for jobs over the next six months. The Conference Board’s index of consumer confidence climbed to 59.5 from a revised 57.6 reading in June that was lower than previously estimated. Economists predicted the July gauge would fall to 56, according to the median forecast in a Bloomberg News survey.
All 12 stocks in a gauge of homebuilders declined after a separate report from S&P/Case-Shiller showed home prices in 20 metropolitan areas declined 4.5 percent in May from the same month last year. The year-over-year decrease was the biggest since November 2009, adding to evidence the housing market is struggling. Other data showed sales of new homes unexpectedly declined for a second month in June.
AK Steel Holding, the third-largest U.S. steelmaker by sales, plunged 17 percent to $12.81 as it reported second-quarter profit excluding some items of 32 cents a share, missing the average analyst estimate by 36 percent, Bloomberg data show.
Netflix Inc. (NFLX) dropped 5.2 percent to $266.91 after its third-quarter sales and profit forecast missed estimates and the company said a price increase was crimping new-user signups.
Supervalu Inc. (SVU) gained 6.9 percent to $9.11 as the supermarket chain reported first-quarter earnings of 35 cents a share, beating the average analyst estimate in a Bloomberg survey of 33 cents.
RadioShack Corp. (RSH) surged 20 percent to $15.69 as the consumer-electronics retailer said it will provide Verizon Wireless products in its stores starting Sept. 15 and it was “comfortable with the range of analysts’ earnings estimates for the remainder of 2011.”
Baidu Inc. (BIDU), the owner of China’s most popular Internet search engine, climbed 5 percent to $164.36. The company said third-quarter sales will be at least $611.1 million, compared with the average analyst forecast for $568.4 million, Bloomberg data show.
Broadcom Corp. (BRCM), the supplier of communications chips for Apple Inc.’s mobile devices, rallied 9.4 percent to $38.20 after forecasting third-quarter sales that topped analysts’ predictions on booming demand for iPhones and iPads.
Lexmark International surged 18 percent, the biggest gain since 2000 and the most in the S&P 500, to $33.93. The maker of laser and inkjet printers reported second-quarter profit excluding some items of $1.36, beating the average $1.03 estimate of analysts surveyed by Bloomberg on strong demand from corporate customers.
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