The Standard & Poor’s 500 Index fell, after yesterday’s rally, as Hewlett-Packard Co. tumbled and Federal Reserve Chairman Ben S. Bernanke said the central bank’s ability to offset headwinds is “not infinite.”
HP slumped 12 percent as it announced a charge of $8.8 billion linked to its Autonomy Corp. business, saying there were “accounting improprieties” before its 2011 acquisition of the company. Best Buy Co. declined 13 percent as the largest consumer-electronics retailer reported a $10 million loss amid weaker-than-expected sales. Intel Corp. dropped 4.3 percent after UBS AG cut its rating for the largest chipmaker.
The S&P 500 fell 0.3 percent to 1,383.34 at 2:58 p.m. New York time. The benchmark index climbed 2 percent yesterday. The Dow Jones Industrial Average slid 45.95 points, or 0.4 percent, to 12,750.01. Trading in S&P 500 companies was almost in line with the 30-day average at this time of day.
“Bernanke’s comment was a polite way of telling Congress that they should not kick the can down the road,” 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. “While the disappointment in HP is putting pressure on the market, these may be HP’s issues and not indicative of the overall economy. Europe is working on a solution, the issue is how quickly they get there. It’s an incredibly volatile market.”
Fed Chairman Bernanke said an agreement on ways to reduce long-term federal budget deficits could remove an impediment to growth, while failure to avoid the so-called fiscal cliff would pose a “substantial threat” to the recovery.
‘Fiscal Clarity’
“Cooperation and creativity to deliver fiscal clarity --in particular, a plan for resolving the nation’s longer-term budgetary issues without harming the recovery -- could help make the new year a very good one for the American economy,” Bernanke said in remarks to the Economic Club of New York at the Marriott Marquis Hotel in Times Square. “The realization of all of the automatic tax increases and spending cuts that make up the fiscal cliff, absent offsetting changes, would pose a substantial threat to the recovery.”
Stocks capped a two-day rally yesterday amid better-than- forecast housing data and as President Barack Obama expressed confidence on a budget agreement with Congress.
Housing starts in October rose to a four-year high. European finance ministers will try to plug a 15 billion-euro hole in Greece’s finances and win over the International Monetary Fund in the latest installment of three years of debt- crisis brinkmanship. Luxembourg Prime Minister Jean-Claude Juncker, who will oversee the finance-chief meeting, said he sees “good chances” of a deal being struck tonight.
“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.”
HP tumbled 12 percent to $11.69. The charge from the acquisition of Autonomy was due to “accounting improprieties, disclosure failures and outright misrepresentations” that happened before Hewlett-Packard purchased the company last year for $10.3 billion. HP also forecast fiscal first-quarter profit that missed analysts’ estimates amid a continuing slump in personal computer sales.
Best Buy
Best Buy sank 13 percent to $11.97. 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 dropped 4.3 percent to $19.38. The shares were downgraded to neutral from buy at UBS, 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. retreated 11 percent to $30.73. 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. slid 2.1 percent to $36.18. 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. climbed 0.7 percent to $9.66 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 of as much as 4.7 percent 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. added 2.8 percent to $26.27. 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.
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.
More Cuts
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.
