The Standard & Poor’s 500 Index advanced, erasing earlier losses, as an increase in housing starts tempered a tumble in Hewlett-Packard Co. (HPQ:US) shares.
Bank of America Corp. and American Express Co. added at least 1.1 percent to pace gains in the biggest companies. HP (HP:US) fell 12 percent as it announced a charge of $8.8 billion linked to its Autonomy Corp. business, saying there were “accounting improprieties” before its takeover of the company. Best Buy Co. (BBY:US) sank 13 percent as the largest consumer-electronics retailer reported a $10 million loss on weaker-than-expected sales.
The S&P 500 rose 0.1 percent to 1,387.82 at 4 p.m. New York time, after falling 0.7 percent earlier. It had rallied 2.5 percent over the previous two days. The Dow Jones Industrial Average slid 7.45 points, or 0.1 percent, to 12,788.51. Volume for exchange-listed stocks in the U.S. was 5.6 billion shares, or 7.8 percent below the three-month daily average.
“There will be this back and forth,” Wayne Lin, a money manager at Baltimore-based Legg Mason Inc., said in a phone interview. His firm oversees $646 billion. “People are coming to the realization that earnings growth is not going to be as robust as analysts had expected. That’s starting to creep in. On the other hand, housing is strengthening. As for Europe, ultimately, they will do what it takes to support Greece.”
New-home construction unexpectedly climbed to a four-year high in October, more evidence of a revival in the industry that’s helping propel the U.S. economy. The euro traded at almost a two-week high against its U.S. counterpart as the region’s finance ministers met in Brussels to discuss ways to plug a 15-billion euro ($19 billion) hole in Greece’s finances.
Stocks briefly extended losses as Federal Reserve Chairman Ben S. Bernanke said the central bank doesn’t have the tools to offset the potential harm to the economy from the so-called fiscal cliff. The S&P 500 (SPX) jumped 2 percent yesterday amid better-than-forecast housing data and as President Barack Obama expressed confidence on a budget agreement with Congress.
“Bernanke’s comment was a polite way of telling Congress that they should not kick the can down the road,” said John Manley, who helps oversee about $207.5 billion as chief equity strategist for Wells Fargo Advantage Funds in New York. He spoke in a telephone interview.
HP tumbled 12 percent to $11.71. The company accused Autonomy, the software maker it bought last year, of a broad range of financial falsehoods resulting in an $8.8 billion writedown, adding to the challenges facing Chief Executive Officer Meg Whitman in the midst of a multiyear turnaround.
Hewlett-Packard began investigating Autonomy’s finances after a senior executive at Autonomy came forward after founder Mike Lynch, 47, departed in May, Hewlett-Packard said. Lynch, in an interview with the Wall Street Journal, said Hewlett-Packard has mismanaged the Autonomy deal and that the company is “trying to cover it up with this big writeoff.”
Best Buy sank 13 percent to $11.96. Chief Executive Officer Hubert Joly, who took over in September, is increasing employee training to improve customer service and plans to work with vendors on exclusive products as Best Buy customers defect to Amazon.com Inc. and Wal-Mart Stores Inc. Same-store sales fell 4.3 percent in the third quarter, more than the 3.3 percent drop estimated by analysts in a Retail Metrics survey. Sales by that measure have slid in nine of the past 10 quarters.
Intel Corp. (INTC:US) dropped 3.6 percent to $19.51 after UBS AG cut its rating for the largest chipmaker. The shares were downgraded to neutral from buy at the firm, which cited uncertainty around CEO transitions. Paul Otellini will retire in May, in a surprise move three years before mandatory retirement, after failing to equip the company for a shift toward mobile devices and away from the personal computers it long dominated.
Cliffs Natural Resources Inc. (CLF:US) retreated 12 percent to $30.48. The largest U.S. iron-ore producer was downgraded to sell at Goldman Sachs Group Inc., which cited the company’s high production costs in weak iron ore markets.
Campbell Soup Co. (CPB:US) slid 2 percent to $36.21. The world’s largest soup maker said earnings this quarter could be “negatively impacted” amid high soup inventories and an increase in marketing spending.
Research In Motion Ltd. (RIM) climbed 1.2 percent to $9.71 after Jefferies & Co. raised the stock’s rating to hold, saying the struggling maker of the BlackBerry may avoid a “worst-case scenario.” The shares pared gains after news that the BlackBerry is being dropped by the U.S. government agency that investigates plane accidents because of the device’s reliability issues.
Archer-Daniels-Midland Co. (ADM:US) added 3.1 percent to $26.34. The world’s biggest corn processor was raised to outperform from market perform at BMO Capital Markets by equity analyst Kenneth Zaslow. The 12-month share-price estimate is $32.
Groupon Inc. (GRPN:US) jumped 8.5 percent to $3.37 after Tiger Global Management LLC, the $8 billion hedge fund run by Chase Coleman and Feroz Dewan, said it acquired a 9.9 percent stake in the daily deal site.
Lower earnings estimates are dragging down stocks from this year’s highs and their full effect has yet to be felt, according to Hasan S. Tevfik, a global equity strategist at Citigroup Inc. He compares the performance of an earnings-revision index, or ERI, compiled weekly by Citigroup with MSCI Inc.’s All-Country World Index since the beginning of last year.
Since the first week of May, the revision index has been less than zero, which means there were more estimate cuts than increases among analysts. The MSCI gauge of stocks in developed and emerging markets rose to its peak for the year in September and then lost as much as 6.7 percent.
“ERI remains an anchor for global equity markets,” Tevfik wrote. A similar disparity between estimate changes and share prices in 2011 was resolved when stocks declined in July and August of that year, the London-based strategist added.
Earnings projections for next year are poised to decline further, he wrote, citing the gap between analysts’ estimates for companies and strategists’ projections for stock indexes. Citigroup strategists are collectively calling for profit growth of 7 percent, trailing a 12 percent increase implied by company- specific estimates, Tevfik wrote. The lower figure may be too high, he added, as economic growth slows worldwide.
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