U.S. Stocks Decline as Earnings Miss Analyst Estimates

U.S. stocks fell, erasing the biggest rally in three months for the Standard & Poor’s 500 Index, amid disappointing results by companies from Bank of America Corp. to Textron Inc.

All 10 groups in the S&P 500 declined as technology, energy and financial shares dropped the most. Apple Inc. tumbled 5.5 percent, briefly falling below $400 for the first time since 2011 as one of its suppliers reported an inventory glut. Bank of America sank 4.7 percent after profit missed analysts’ projections. Textron slumped 13 percent after lowering its forecast for business-jet sales. Caterpillar Inc. slid 1.4 percent amid an analyst downgrade.

The S&P 500 declined 1.4 percent to 1,552.01 today, paring its 2013 gain to 8.8 percent. The Dow Jones Industrial Average lost 138.19 points, or 0.9 percent, to 14,618.59. About 7.9 billion shares traded on U.S. exchanges, 23 percent above the three-month average.

“We’re at a point where it’s been exceedingly positive and it’s now swinging back the other way, and that’s a treacherous time for markets,” Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said in a phone interview. “People are nervous.”

Today’s decline in the S&P 500 erased yesterday’s rally of 1.4 percent, which was sparked by better-than-expected housing data and earnings from Coca-Cola Co. to Johnson & Johnson. The index has fallen 2.6 percent since reaching an all-time high of 1,593.37 on April 11, as China’s economic growth unexpectedly slowed, commodities tumbled and data on American employment and retail sales missed economists’ estimates.

‘Spring Break’

U.S. stocks are poised for a “spring break” that will bring losses to investors as economic growth slows and corporate earnings weaken, according to Jonathan Golub at UBS AG.

The S&P 500 declined 7.1 percent on average from May to August in the last three years, according to data compiled by UBS. The benchmark gauge for American equities rallied 8.8 percent between January and April and climbed 8.2 percent during the final four months from 2010 to 2012, the data show.

“The market’s advance has been out of sync with weak earnings and economic trends,” Golub, chief U.S. equity strategist at UBS, wrote in a note dated yesterday. “Another spring break is likely to materialize and that now is a good time to begin dialing back on risk.”

The Federal Reserve said today in its Beige Book business survey that the U.S. economic expansion remained “moderate” amid gains in manufacturing, housing and autos that offset weakness in defense-related industries in some regions. The survey is based on reports from the Fed’s 12 regional banks from late February to early April.

Earnings Season

Companies from American Express Co. to EBay Inc. are among those in the S&P 500 posting earnings today. Of the 57 that have reported so far this season, 39 of them have beaten profit estimates and 29 have exceeded forecasts for sales, according to data compiled by Bloomberg. Earnings at S&P 500 companies dropped 1.4 percent in the first three months of the year, according to analyst estimates compiled by Bloomberg. That would mark the first year-over-year decrease since 2009.

Volatility Index

Companies whose earnings are most tied to economic swings led today’s retreat. The Morgan Stanley Cyclical Index dropped 1.9 percent. The Chicago Board Options Exchange Volatility Index, or VIX, surged 18 percent to 16.51 today. The VIX, which moves in the opposite direction to the S&P 500 about 80 percent of the time, rallied 43 percent on April 15, the most since August 2011. The gauge is down 8.4 percent this year.

Technology companies retreated 2.3 percent, the most among 10 groups in the S&P 500.

Apple, the world’s most valuable company, plunged 5.5 percent to $402.80, briefly falling below $400 for the first time since December 2011. Apple’s audio-chip supplier, Cirrus Logic Inc., reported an inventory glut that suggests iPhone sales may fall short of analysts’ estimates. Cirrus Logic plunged 16 percent to $18.05.

The KBW Bank Index slipped 2 percent as all but one of its 24 members declined.

Bank of America tumbled 4.7 percent, the most since November, to $11.70 after shortfalls in mortgage banking and trading marred first-quarter results and slowed the company’s turnaround.

Energy stocks fell 1.9 percent as a group as oil fell to a four-month low. Chevron Corp. slumped 1.9 percent to $114.81 while Schlumberger Ltd. erased 3.2 percent to $70.97.

Copper Prices

Freeport-McMoRan Copper & Gold Inc. plunged 4.3 percent to $28. The largest publicly traded copper producer has dropped for the past six days, losing 18 percent. Copper futures plunged the most in 16 months.

Textron slid 13 percent to $25.41 after saying business jet deliveries will probably fall this year. The Providence, Rhode Island-based manufacturer previously forecast a “modest” increase. First-quarter profit was 40 cents a share, missing the average analyst estimate by 5 cents.

Caterpillar erased 1.4 percent to $81.47. Sameer Rathod, an analyst with Macquarie Group Ltd., cut the rating on the world’s largest maker of construction equipment to neutral from outperform, citing “tepid” growth in China that will continue longer than anticipated.

Mattel Inc. gained 1.9 percent, the third-biggest rally in the S&P 500, to $43.78. The world’s biggest toymaker posted first-quarter earnings of 11 cents a share, topping the 8-cent profit estimated by analysts on average.

Abbott Laboratories climbed 2.4 percent to $37.28. The medical device and nutritional products maker that split off its drug unit on Jan. 1 said first-quarter profit rose 55 percent on higher sales of its baby formula and lower taxes.

Before it's here, it's on the Bloomberg Terminal.