Thursday, July 28, 2011

U.S. Stocks Drop on Debt-Ceiling Concern, Decline in Durable Goods Orders

U.S. stocks fell, dragging the Standard & Poor’s 500 Index down the most in almost two months, as lawmakers indicated they were no closer to reaching a compromise on the federal debt limit.

Technology and industrial stocks led declines among 10 S&P 500 groups. Caterpillar Inc. (CAT) and General Electric Co. (GE) decreased more than 2.4 percent after a government report showed orders for durable goods unexpectedly decreased. Corning Inc. (GLW) dropped 7.2 percent after reducing its forecast for glass demand amid lower television-sales projections. Inc. (AMZN) rallied 3.9 percent after its Kindle e-reader and digital-media services helped second-quarter results beat analysts’ estimates.

The S&P 500 slipped 2 percent, its biggest decline since June 1, to 1,304.89 at 4 p.m. in New York. The Dow Jones Industrial Average retreated 198.75 points, or 1.6 percent, to 12,302.55. Treasury yields, which dropped yesterday on speculation lawmakers would reach an accord on the nation’s debt ceiling, rose today as the political stalemate continued.

“The macro events are clearly driving the market,” Sarah Hunt, portfolio manager at Alpine Mutual Funds in Purchase, New York, said in a telephone interview. Alpine oversees about $6.5 billion. “Beyond the fact that we have this political squabble, which never makes people feel better, you also have an underlying potential softening in the economic data.”

The S&P 500 has fallen 3 percent this week, its biggest three-day decline since June 3, as Republicans and Democrats sparred over separate plans to raise the federal debt limit and avoid a default by Aug. 2. S&P, Moody’s Investors Service and Fitch Ratings have said they may downgrade the U.S.’s top AAA rating if lawmakers fail to resolve the stalemate. Stocks rallied 2.2 percent last week as corporate profits topped analysts’ estimates.

‘True Compromise’
Equities declined today as an agreement remained elusive. House Speaker John Boehner’s reworked deficit-cutting plan was gaining support among Republicans, while Senate Majority Leader Harry Reid said his competing proposal to avert a potential U.S. default is the only “true compromise.”

The non-partisan Congressional Budget Office said Reid’s plan would cut $2.2 trillion over 10 years, shy of its $2.7 trillion target. The savings also fall below the $2.4 trillion needed to meet Republican demands that a debt-limit extension be accompanied by an equal amount of savings. President Barack Obama is insisting on a debt-limit increase large enough to last through the 2012 elections.

CBO said Boehner’s plan would save just $850 billion rather than its advertised $3 trillion, forcing him to make revisions and round up backing among fiscal conservatives after Republican leaders postponed a vote scheduled for today.

Investor Concern
Rates on six-month Treasury bills due Aug. 4 climbed 10 basis points to 0.15 percent, the highest since February, according to Bloomberg Bond Trader data, a signal investors are growing more concerned that lawmakers will fail to reach an agreement on the nation’s debt. The bills are the first government debt securities to mature after the deadline to increase the $14.3 trillion borrowing limit passes on Aug. 2.

Benchmark Treasury 10-year note yields increased two basis points to 2.98 percent.

Stock futures retreated earlier as the U.S. Commerce Department said bookings for goods meant to last at least three years fell 2.1 percent in June after a 1.9 percent gain the prior month that was smaller than last reported. The median forecast of 76 economists surveyed by Bloomberg News projected a 0.3 percent increase.

Stocks lost further ground in the afternoon after the Federal Reserve said the U.S. economy grew at a slower pace in more parts of the country since the beginning of June as shoppers restrained spending and factory production eased.

Beige Book

“Economic activity continued to grow,” the Fed said in its Beige Book survey released today in Washington. “However, the pace has moderated in many districts.” Growth slowed in eight of the Fed’s 12 regions, compared with four in the last survey, the central bank said.

The S&P 500 Industrials Index lost 2.7 percent, the second- most among 10 groups in the benchmark gauge for U.S. equities.

Caterpillar, the world’s largest maker of construction and mining equipment, slipped 3.7 percent to $101.34. General Electric decreased 2.4 percent to $18.11.

Boeing Co. (BA) rose the most in the Dow, adding 0.7 percent to $70.63, as the airplane maker lifted its forecast for full-year earnings. Net income rose 20 percent to $941 million, or $1.25 a share, buoyed by higher commercial sales. The average estimate of 22 analysts surveyed by Bloomberg was for 97 cents. Full-year profit will be $3.90 to $4.10 a share, Boeing said, a jump of 10 cents at each end of its previous range.

‘Tug of War’
“It’s a tug of war between the headline risk of the debt ceiling issue and earnings,” Matthew DiFilippo, who helps manage $1 billion as director of research at Stewart Capital Advisors LLC in Indiana, Pennsylvania, said in telephone interview. “The volatility may create buying opportunities because corporate earnings are coming in strong, and the market does appear to be cheap compared to the underlying earnings power.”

Since July 11, about 81 percent of S&P 500 companies that have released quarterly results beat estimates for earnings per share, according to data compiled by Bloomberg.

Technology companies lost 3 percent, the most among 10 groups in the S&P 500 today.

Corning slumped 7.2 percent to $16.04. The maker of glass for flat-panel televisions lowered its outlook for the global glass market and slashed its full-year sales forecast for its Gorilla Glass by 20 percent to $800 million.

Juniper, Cisco
Juniper Networks Inc. (JNPR) plunged 21 percent to $24.66. The second-largest maker of Internet networking equipment posted second-quarter profit excluding certain costs of 31 cents a share. Analysts on average projected profit of 33 cents a share, according to data compiled by Bloomberg.

Cisco Systems Inc. (CSCO), the largest maker of networking equipment, declined 3.7 percent to $15.69. gained 3.9 percent to $222.52. The world’s largest online retailer reported second-quarter net income of $191 million, or 41 cents a share, topping the 34-cent average analyst estimate. Net sales rose to $9.91 billion, compared with the average prediction for $9.38 billion.

Total System Services Inc. (TSS) had the biggest gain in the S&P 500, adding 5.3 percent to $19.13. The credit-card processor said it earned 28 cents a share from continuing operations in the second quarter. That’s 1 cent more than the average analyst estimate in a Bloomberg survey. Barclays Plc raised the stock’s rating to “overweight” from “equal weight.”

Delta, Dunkin’
Delta Air Lines Inc. (DAL) fell 5.1 percent to $7.61. The world’s second-largest airline plans further seating-capacity cuts after higher fuel and maintenance costs pulled second-quarter profit below analysts’ estimates.

Dunkin’ Brands Group Inc. surged 47 percent to $27.85 on the first day of trading. The operator of Dunkin’ Donuts coffee shops sold 22.3 million shares at $19 each in an initial public offering.

“It’s a very mixed market environment,” Michael C. Aronstein, who manages $1.1 billion as president of New York- based Marketfield Asset Management LLC, said in a telephone interview. “There are sectors, companies and countries that are doing really well, while there are others that are very distressed.”

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