U.S. Stocks Decline Ahead of Corporate Earnings Season

U.S. stocks fell, after the Standard & Poor’s 500 Index climbed to a five-year high, as investors awaited the start of the corporate earnings season tomorrow.

Boeing Co. slumped 2 percent as a 787 Dreamliner operated by Japan Airlines Co. caught fire on the ground today at Boston’s Logan International Airport. Applied Materials Inc., the world’s largest producer of chipmaking equipment, declined

1.2 percent after being downgraded at JPMorgan Chase & Co. Amazon.com Inc. rallied 3.6 percent to a record high after Morgan Stanley upgraded the world’s largest online retailer.

The S&P 500 fell 0.3 percent to 1,461.89 at 4 p.m. New York time. The Dow Jones Industrial Average lost 50.92 points, or 0.4 percent, to 13,384.29. About 5.8 billion shares changed hands on U.S. exchanges, 5 percent below the three-month average.

“We’ve come a long way in a very short time,” Tom Wirth, who helps manage $1.6 billion as senior investment officer for Chemung Canal Trust Co., in Elmira, New York, said in a phone interview. “I’m expecting better-than-anticipated earnings. Yet we need to see some consolidation first.”

The S&P 500 ended last week at the highest level since 2007 after data showed employers added workers in December at about the same pace as the prior month. The gauge rallied 2.5 percent on Jan. 2 after Republicans and Democrats agreed on a compromise budget that avoided the so-called fiscal cliff of sweeping tax increases and spending cuts.

Earnings Season

Alcoa Inc. will unofficially start the U.S. earnings reporting season after the market closes tomorrow. Fourth-quarter profits at S&P 500 companies grew an average 2.9 percent, according to data compiled by Bloomberg. Excluding financial companies, earnings increased 0.5 percent.

Eight out of 10 groups in the S&P 500 retreated today as utility and energy companies had the biggest losses, dropping at least 0.8 percent. Telephone and health-care providers advanced more than 0.3 percent.

Boeing declined 2 percent to $76.13. The company’s all-new model, which has a fuselage made of composite materials instead of aluminum and has more electric-operated systems than earlier models, has been plagued by incidents since the first plane was delivered to an airline at the end of 2011.

Applied Materials dropped 1.2 percent to $11.67. The stock was downgraded to underweight from neutral at JPMorgan by analyst Christopher Blansett. The share-price estimate is $10.

Yahoo! Inc. declined 2.3 percent to $19.40. The biggest U.S. Web portal was cut to market perform from outperform at Sanford C. Bernstein & Co.

New Coverage

Archer-Daniels-Midland Co. retreated 4.1 percent to $28.01. The world’s largest corn processor was rated underweight in new coverage at JPMorgan by equity analyst Ann Duignan. The share-price estimate is $28.

Apple Inc. lost 0.6 percent to $523.90 after Barclays Plc slashed its share-price estimate for the world’s most valuable company to $740 from $800.

Illumina Inc. tumbled 7.1 percent to $50.90. The U.S. maker of DNA sequencing equipment fell after Roche Holding AG indicated it may no longer be interested in buying the company.

Amazon.com rallied 3.6 percent to $268.46. Worldwide e-commerce sales will reach $1 trillion by 2016, up from $512 billion last year, Scott Devitt, an analyst at Morgan Stanley, projected in a Jan. 6 research report. By then, Amazon’s market share will be 23.5 percent, helping net sales reach $166 billion, Devitt predicted, higher than his prior projection for sales of $145 billion and a 20.6 percent share.

Walgreen Co. rose 2.3 percent to $38.03. The largest U.S. drugstore chain was raised to buy from hold at Jefferies Group Inc. by equity analyst Scott Mushkin. The 12-month share-price estimate is $47.

$215 Billion

Nationstar Mortgage Holdings Inc. jumped 17 percent to $38.83 after saying it will acquire $215 billion in residential mortgage servicing rights from Bank of America.

Speculators are abandoning money-losing bets that stocks with the closest links to the U.S. economy will fall as America’s most-hated shares stage the best rally in a year relative to the broader market.

The 20 stocks with the highest short sales in the S&P 500 rose an average of 5.1 percent in December, compared with 0.7 percent for the full gauge, according to data compiled by Bloomberg. The performance gap is the widest since January 2012. Companies from U.S. Steel Corp. to J.C. Penney Co. are gaining at the expense of phone companies and utilities, which usually do best when the economy contracts.

Bulls vs Bears

Market bulls say the capitulation underscores growing confidence in the U.S. recovery, while bears say the rally shows indiscriminate buying as earnings estimates fall close to a one-year low. The change echoes money manager Laszlo Birinyi’s prediction that the four-year bull market will finally attract investors who have stayed away from equities.

“Let’s put it this way, I made more money on my longs than on my shorts,” Gilles Sitbon, who helps oversee $2.1 billion at Sycomore Asset Management in Paris, said in a phone interview on Jan. 3. His Sycomore Long-Short Opportunities fund rose 15 percent in 2012. “It’s not just hard to be short, it is painful.”

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