Bloomberg News

U.S. Stocks Fall on Fed Concerns Amid Corporate Earnings

February 21, 2013

U.S. stocks fell, following the biggest drop since November for the Standard & Poor’s 500 Index (CYC), as concern grew that the U.S. Federal Reserve may slow the pace of stimulus and investors weighed corporate earnings.

VeriFone Systems Inc. (PAY:US) lost 43 percent after the maker of credit-card terminals forecast second-quarter profit that missed analysts’ estimates because of weak economic conditions in Europe. Wal-Mart Stores Inc. rose 1.5 percent as the world’s biggest retailer reported earnings that topped forecasts. Hewlett-Packard (HPQ:US) Co. rallied 6.7 percent after regular trading as its outlook exceeded estimates.

The S&P 500 fell 0.6 percent, or 9.53 points, to 1,502.42 at 4 p.m. in New York. The benchmark index lost 1.2 percent yesterday amid concern that the Fed will scale back economic stimulus. The Dow Jones Industrial Average dropped 46.92 points, or 0.3 percent, to 13,880.62 today. About 7.7 billion shares exchanged hands on U.S. exchanges today, 25 percent above the three-month average.

“The timeliness of the Fed’s comments coming out took a little bit of the excess out of the stock market,” Tim Hartzell, who helps manage about $400 million as chief investment officer at Sequent Asset Management in Houston, said in a phone interview. “Equities really had gotten ahead of itself with just the belief that there’s always going to be $85 billion come into the market from the Fed.”

Fed Debate

Several participants at the Federal Open Market Committee’s Jan. 29-30 meeting said the central bank should be ready to vary the pace of its $85 billion in monthly bond purchases, minutes from the meeting showed yesterday, spurring concern stimulus will be curtailed.

The S&P 500 has gained 5.4 percent this year as U.S. lawmakers agreed on a compromise budget and companies reported better-than-estimated earnings. The benchmark gauge is 4 percent below its 2007 all-time high of 1,565.15, while the Dow is 2 percent from its record high of 14,164.53.

About 72 percent of the 433 companies in the S&P 500 that have released quarterly results since Jan. 8 have exceeded profit estimates, and 65 percent beat sales estimates, data compiled by Bloomberg show.

“People are taking some profits and watching to see what the next catalyst is,” Neil Massa, senior equity trader at Boston-based John Hancock Asset Management, said in a telephone interview. His firm oversees $233 billion. “It’s a healthy sell off. We’ve gone up so much, it’s a good opportunity to take a breather. I don’t think it’s a sign of a continuing trend.”

Budget Cuts

The Chicago Board Options Exchange Volatility Index, or VIX, climbed 3.7 percent to 15.22. That followed a jump of 19 percent yesterday, the biggest advance since November 2011.

Volatility will likely increase with the March 1 deadline for automatic federal budget cuts approaching, said New York- based Russ Koesterich, the chief investment strategist at BlackRock. Republicans and President Barack Obama are seeking to assign blame for who would be at fault if the cuts, known as sequestration, take effect.

Investors holding more U.S. equities than the benchmark they track should reduce exposure, Koesterich said at a briefing in Sydney. “Part of what we’d suggest again is lowering the allocation a bit to the U.S. and second of all, being cautious of the parts of the market that are dependent upon U.S. consumption.”

Philadelphia Manufacturing

Stocks extended losses today as the Federal Reserve Bank of Philadelphia’s general economic index dropped to minus 12.5, the lowest reading since June, from minus 5.8 in January. Readings lower than zero signal contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware. The median forecast of 58 economists surveyed by Bloomberg projected an increase to 1.

Jobless claims increased by 20,000 to 362,000 in the week ended Feb. 16, the Labor Department reported today in Washington. Among other economic data, the index of U.S. leading indicators rose for a second month in January, climbing 0.2 percent. Purchases of existing houses, tabulated when a contract closes, increased 0.4 percent to a 4.92 million annual rate.

Investors sold shares of companies most tied to economic growth, sending the Morgan Stanley Cyclical Index down 0.9 percent. Raw-material shares retreated 0.9 percent for the biggest drop among 10 groups in the S&P 500, while the Dow Jones Transportation Average slipped 0.8 percent. The KBW Bank Index lost 1.2 percent as 22 of its 24 companies slid.

Bank of America Corp. tumbled 3.2 percent to $11.42 for the biggest drop in the Dow. Caterpillar Inc. sank 1.8 percent to $91.53. Home Depot Inc. lost 3.1 percent to $64.38.

Semiconductors Tumble

Semiconductors (S5SSEQX) performed the worst among 24 groups in the S&P 500, slipping 2 percent. Advanced Micro Devices Inc. dropped 3.7 percent to $2.60. Micron Technology Inc. slid 2.5 percent to $7.68, and Intel Corp. fell 2.3 percent to $20.25.

Hewlett-Packard rose 6.7 percent to $18.25 as of 4:45 p.m. in New York. The shares surged 2.4 percent during regular trading ahead of the release of the company’s earnings, with most of the gain coming in the final hour. The largest personal- computer maker forecast fiscal second-quarter profit that exceeded analysts’ estimates, helped by cost-cutting measures and recovering demand for enterprise services.

VeriFone tumbled $13.65 to $18.24. Earnings excluding some items will be 45 cents to 50 cents a share in the quarter ending in April, San Jose, California-based VeriFone said. Analysts on average had predicted (PAY:US) profit of 80 cents a share, according to data compiled by Bloomberg.

Tesla Slips

Tesla Motors Inc. dropped 8.8 percent to $35.16. The maker of electric cars headed by billionaire Elon Musk reported a fourth-quarter loss that was larger than analysts expected, blaming a jump in operating costs during the start of production.

PG&E Corp. (PCG:US), the owner of California’s largest utility, dropped 4 percent to $41.41. The company fell the most since August 2011 after forecasting 2013 earnings below the average analyst estimate.

Carlyle Group LP, the second-largest U.S. private-equity company, tumbled 7.8 percent to $33.80, the most since going public in May. Washington-based Carlyle, the most active U.S. private-equity buyer in 2012, reported fourth-quarter profit that fell short of analysts’ estimates as the firm’s fund holdings appreciated at a slower pace.

Wal-Mart rose $1.05 to $70.26. The retailer rose as fourth- quarter profit topped analysts’ estimates and the company raised its dividend, overcoming concerns that tax increases would hurt earnings this year.

Safeway, Boeing

Safeway Inc. soared $2.84 to $22.97 for the biggest advance in the S&P 500. (SPX) The second-largest U.S. grocery chain reported fourth-quarter profit that exceeded analysts’ estimates on higher store sales.

Boeing Co. rallied 1.6 percent to $76.01. The Chicago-based company will present a battery redesign for the 787 Dreamliner tomorrow in a bid to satisfy regulators’ safety concerns and get the jet back into the air within weeks, people with knowledge of the proposal said.

Imax Corp. increased 4.3 percent to $26.27, its highest level in 11 months. The designer of digital imaging and sound technologies reported fourth-quarter adjusted earnings per share of 23 cents, beating analyst estimates for 16 cents. The company said that growing international demand for movies shown in its large-screen format helped double fourth-quarter profit.

To contact the reporters on this story: Sarah Pringle in New York at springle1@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

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


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Companies Mentioned

  • PAY
    (VeriFone Systems Inc)
    • $36.8 USD
    • -0.73
    • -1.98%
  • HPQ
    (Hewlett-Packard Co)
    • $36.56 USD
    • -0.20
    • -0.55%
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