Bloomberg News

U.S. Stocks Fall to Seven-Week Low as Fed Offsets Economy

October 24, 2012

U.S. stocks declined, sending the Standard & Poor’s 500 Index to a seven-week low, as the Federal Reserve’s call for moderate growth offset signs of improvement in Chinese factory output and America’s housing market.

Netflix Inc. (NFLX:US) plunged 12 percent after the world’s largest online video service cut its forecast (NFLX:US) for domestic growth. Altera Corp. (ALTR:US) slumped 8.4 percent as the maker of programmable chips used in phone systems predicted sales that fell short of estimates. D.R. Horton Inc. (DHI:US) and Toll Brothers Inc. (TOL:US) added at least 1.5 percent to pace gains in homebuilders. Facebook Inc. (FB:US), the world’s biggest social networking site, surged 19 percent after reporting sales that topped analysts’ projections.

The S&P 500 declined 0.3 percent to 1,408.75 at 4 p.m. New York time, dropping 1.8 percent in two days. The Dow Jones Industrial Average lost 25.19 points, or 0.2 percent, to 13,077.34. Volume for exchange-listed stocks in the U.S. was 6.1 billion shares, or about in line with the three-month average.

“It’s been a pretty lackluster market,” Walter “Bucky” Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama, said in a telephone interview. “There’s nothing new or encouraging in terms of the Fed’s outlook regarding the economy. In addition to that, top line growth of companies has been disappointing.”

Equities erased gains as the Fed said the economy is still growing modestly and unemployment remains elevated as it maintains $40 billion in monthly purchases of mortgage-backed securities aimed at spurring the three-year expansion. An earlier advance was driven by a survey signaling a smaller contraction in China’s manufacturing. Purchases of new homes in the U.S. rose to the highest level in more than two years.

Earnings Season

Forty-four companies in the S&P 500 (SPX) were scheduled to release results today. Earnings at about 69 percent of the index’s companies beat analysts’ estimates, according to data compiled by Bloomberg. Third-quarter sales missed forecasts at 60 percent of companies, according to data compiled by Bloomberg, the data showed.

Concern about a worsening of the earnings picture has sent the S&P 500 down 3.9 percent from this year’s high on Sept. 14. The decline has extended its October loss to 2.2 percent after the index capped four straight months of gains. The benchmark measure is still up 12 percent in 2012 on speculation central bankers will keep economies expanding.

Netflix lost 12 percent to $60.12. The company is counting on its profitable U.S. streaming and mail-order DVD businesses to pay for overseas growth, a plan analysts question with dwindling gains at home.

Switching Away

Altera retreated 8.4 percent to $29.89. Two customers are switching away from Altera’s processors to alternatives, the company said on a conference call with analysts yesterday. That’s taking a bite out of fourth-quarter revenue. One of the customers is Huawei Technologies Co., China’s biggest maker of telecommunications-network equipment, representing $150 million in lost sales, according to a report by Chris Danely, an analyst at JPMorgan Chase & Co.

IAC/InterActiveCorp (IACI:US) slid 8.4 percent to $48. The company founded by Barry Diller forecast a 2013 operating loss for units that include Newsweek, which it plans to convert to an online- only publication after 80 years of print.

Eli Lilly & Co. (LLY:US) lost 2.7 percent to $50.50 after reporting third-quarter earnings that missed analyst estimates (LLY:US) after generic competition reduced revenue from the schizophrenia treatment Zyprexa, once the company’s top-selling drug.

Mattress Maker

Tempur-Pedic International Inc. plunged 19 percent to $25.66. The mattress maker acquiring rival Sealy Corp. cut its 2012 profit forecast amid increased U.S. competition and weakening sales in Europe.

Brinker International Inc. (EAT:US) sank 10 percent to $30.01. The owner of the Chili’s and Maggiano’s dining chains forecast profit that was less than analysts estimated.

A measure of 11 homebuilders in S&P indexes added 1 percent. D.R. Horton advanced 1.5 percent to $21.41. Toll Brothers increased 2 percent to $35.25.

Facebook surged 19 percent to $23.23. Ads delivered to people on mobile devices generated about $150 million during the quarter, or 14 percent of all advertising revenue. That compares with about $10 million in the second quarter, according to an estimate by Brian Wieser, an analyst at Pivotal Research Group. The shares were raised to buy from hold at Stifel Nicolaus & Co.

Dow Chemical Co. (DOW:US) climbed 4.7 percent to $29.88. The chemical producer eliminating 2,400 jobs to cope with a slowing economy reported better-than-expected earnings as volumes rose and plastics output benefited from low-cost natural gas.

Higher Forecast

Lockheed Martin Corp. (LMT:US) increased 2.1 percent to $93.92. The world’s largest defense contractor said third-quarter profit rose 9.3 percent and raised its full-year earnings forecast (LMT:US). The company also projected a decline in 2013 sales.

US Airways Group Inc. (LCC:US) jumped 2.3 percent to $12.37. The carrier that wants to merge with American Airlines said third- quarter profit more than doubled (LCC:US) as passenger traffic increased and the price it paid for jet fuel declined.

Molina Healthcare Inc. (MOH:US) rallied 14 percent to $25.81. The insurer specializing in Medicaid plans for the poor reported a profit on improved results from its biggest market.

Yelp Inc. (YELP:US) climbed 7.4 percent to $25.77. The U.S. website that lets users review businesses ranging from plumbers to pet shops announced an acquisition to expand in Europe and reported sales that topped estimates.

The S&P 500 will advance 5 percent to about 1,480 over the next two weeks before the rally ends and stocks fall, according to Tom DeMark, the creator of indicators to show turning points in securities.

Above High

The gain would push the benchmark index above the 2012 intraday high of 1,474.51 reached on Sept. 14 before buyers are exhausted, said DeMark, whose prediction last year that the S&P 500’s decline would stop at 1,076 proved prescient when the index bottomed at 1,074.77 on Oct. 4, 2011. The advance will fizzle, with the S&P 500 heading for a potential decline of 12 percent to 17 percent, he said in an e-mailed statement.

“There is still some unfinished business upside that will totally surprise and shock most market followers,” DeMark, the founder of Market Studies LLC, wrote. The S&P 500 “rally is a solo move in a sense that the overall market trend has been down since Sept. 14,” he wrote.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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Companies Mentioned

  • NFLX
    (Netflix Inc)
    • $372.53 USD
    • 6.54
    • 1.76%
  • ALTR
    (Altera Corp)
    • $33.59 USD
    • -0.12
    • -0.36%
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