Bloomberg News

U.S. Stocks Retreat as Optimism Over Debt Compromise Fades

July 28, 2011

July 28 (Bloomberg) -- U.S. stocks fell, dragging the Standard & Poor’s 500 Index lower for a fourth day, as lawmakers indicated they were no closer to reaching an agreement to increase the debt ceiling and avoid default.

The Dow Jones Industrial Average erased an advance of as much as 82 points after optimism faded that Democrats and Republicans would be able to compromise over cutting the federal deficit. Exxon Mobil Corp. slipped 2.2 percent as its earnings trailed analysts’ estimates. Technology stocks led gains in the S&P 500, with Cisco Systems Inc. climbing 2 percent after Goldman Sachs Group Inc. advised buying the stock.

The S&P 500 dropped 0.3 percent to 1,300.67, its lowest level for the month, at 4 p.m. in New York. The Dow slipped 62.44 points, or 0.5 percent, to 12,240.11.

“There is no positive news on the debt discussions out of Washington,” Brad Pleimann, head of equity trading at Piper Jaffray & Co. in Minneapolis, wrote in an e-mail before the market closed. “Everyone believes, or at least hopes, that a deal will get done, but as we approach the close with no new news traders begin to unwind risk.”

The S&P 500 retreated 3 percent over the previous three days amid concern lawmakers will fail to agree on an increase in the U.S. debt ceiling by an Aug. 2 deadline in order to avoid a default. A House vote on Republican John Boehner’s debt-ceiling measure scheduled for 6 p.m. tonight in Washington was delayed, though a spokeswoman for Majority Leader Eric Cantor said the vote would take place “this evening.”

Possible Compromise

If the measure passes in the House, Senate Majority Leader Harry Reid said he plans to bring the legislation immediately to the Senate floor and “it will be defeated,” paving the way for Senate votes this weekend on a possible compromise.

The S&P 500 rallied as much as 0.9 percent earlier as Labor Department figures showed jobless claims declined by 24,000 to 398,000 last week, the lowest since April. The median estimate of economists in a Bloomberg News survey called for a drop to 415,000. There were no special factors associated with the decrease other than the usual volatility that occurs each year in July, a Labor Department spokesman said. Stocks also climbed earlier as the number of contracts to purchase previously owned U.S. homes unexpectedly rose in June as buyers tried to take advantage of lower prices and borrowing costs. The 2.4 percent rise in the index of pending home resales followed an 8.2 percent May gain, the National Association of Realtors said today in Washington. Economists forecast a 2 percent drop, according to the median estimate in a Bloomberg News survey.

Exxon Results

D.R. Horton advanced 2.6 percent to $11.90 after reporting a third-quarter profit of 9 cents a share as it benefited from cutting costs. Analysts expected a profit of 6 cents a share.

Before the jobless claims data was released at 8:30 a.m. Washington time, stock futures dipped after Exxon reported its results. The company’s second quarter profit fell short of analyst estimates as a slump in international refining profits limited the benefit of higher oil prices. Net income rose to $2.18 a share from $1.60 a share a year earlier. The world’s largest publicly traded oil company had been expected to earn $2.32 a share, based on the average estimate of seven analysts in a Bloomberg survey. Exxon fell 2.2 percent to $81.46.

Earnings Season

Exxon was among about 60 companies in the S&P 500 releasing results today. About 78 percent of companies in the gauge that have reported earnings since July 11 have exceeded analyst estimates, according to data compiled by Bloomberg.

DuPont Co. increased less than 0.1 percent to $52.30 after raising its full-year earnings forecast and posting second- quarter profit that beat analysts’ estimates because of rising sales of paint pigment and biotech-crop seeds.

Technology companies increased 0.1 percent for the biggest gain among groups in the benchmark index for U.S. equities.

Cisco gained 2 percent to $16.01 for the biggest increase in the Dow. The largest maker of networking gear was raised to “buy” from “neutral” at Goldman Sachs Group, which cited the outlook for higher earnings estimates. LSI Corp. rose the most in the S&P 500, rallying 14 percent to $7.35. The maker of chips used in computer disk drives forecast third-quarter sales from continuing operations of $535 million to $565 million. Analysts had predicted $510.7 million on average.

Akamai, Sprint Tumble

Akamai Technologies Inc., which operates a server network that helps websites load faster, slumped 19 percent to $23.84 after third-quarter revenue and earnings forecasts missed estimates. Profit will be 31 cents to 34 cents a share, excluding some items, said Akamai Chief Financial Officer J.D. Sherman on a conference call late yesterday. That compares with analysts’ estimates of 38 cents.

The S&P 500 Telecommunication Services Index fell the most among 10 groups in the benchmark gauge, losing 2.2 percent. Sprint Nextel Corp. retreated 16 percent to $4.34 after the third-biggest U.S. mobile-phone carrier reported a loss for the 15th consecutive quarter as more customers dropped their contracts.

BMC Software Inc. fell 8.8 percent to $44.61 after the maker of business software said sales were $502.4 million, missing the average estimate of $508.3 million predicted by analysts in a Bloomberg survey.

“In the last couple of quarters we saw how the bulls had the ball on earnings,” Ryan Bend, who oversees $1.3 billion as money manager at Federated Investors Inc.’s Prudent Bear Fund, said in a telephone interview from Pittsburgh. “Now we’re seeing stocks getting hit if they don’t take numbers up or if they miss they’ll get crushed, and that’s a bearish signal for us.”

--With assistance from Conor Sullivan in London. Editors: Jeff Sutherland, Michael P. Regan

To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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