U.S. stocks decline on earnings forecasts after five-day rally

U.S. stocks declined, with the Standard & Poor’s 500 Index falling from a record, as valuations reached an almost four-year high and forecasts at companies from Caterpillar Inc. to Broadcom Corp. disappointed investors.

Caterpillar dropped 6.1% after reducing its 2013 revenue and profit forecast as slumping metal demand decreases orders from mining companies. Broadcom, a maker of chips that connect mobile devices to the Internet, slipped 2.9%. Boeing Co. climbed 5.3% to a record after boosting its full-year earnings estimate. Corning Inc. jumped 14% after approving a $2 billion buyback and agreeing to purchase full ownership of a Samsung Electronics Co. joint venture.

The S&P 500 fell 0.5% to 1,746.38 at 4 p.m. in New York, snapping a five-day, 3.3% rally. The Dow Jones Industrial Average lost 54.33 points, or 0.4%, to 15,413.33. About 6.6 billion shares changed hands on U.S. exchanges, 12% higher than the three-month average.

“The market has run quite a bit,” Edward Painvin, chief investment officer of Chase Investment Counsel Corp., said by phone from Charlottesville, Virginia. His firm oversees $500 million. “Every time you have that kind of move going into earnings season, expectations are high. The market is going to be placing an increasing amount of emphasis on companies delivering expectations and providing some clarity for 2014.”

The S&P 500 advanced 23.03% this year through yesterday, pulling within a percentage point of its 23.5% surge in 2009, amid speculation the Federal Reserve will delay cuts to its monthly bond purchases until the labor market improves. The benchmark index rose 0.6% yesterday to a record as data showed fewer-than-forecast additions to payrolls in September.

Equity Valuations

The S&P 500 was valued at 15.9 times estimated earnings yesterday, the highest since December 2009, data compiled by Bloomberg show. While that’s up 16% this year, it’s still below the multiples at the market’s two previous peaks, when the ratio reached 16.5 in October 2007 and 25.7 in March 2000.

About 87% of stocks in the S&P 500 traded above their average prices from the past 50 days, the most since May 21, data compiled by Bloomberg showed.

The benchmark index and all its 10 main industries traded more than two standard deviations above their respective 50-day moving average, according to data compiled by Bespoke Investment Group LLC. The simultaneous strength in momentum has occurred on only two other days since 1990, a study by the Harrison, New York-based research firm showed.

Former Federal Reserve Chairman Alan Greenspan said stock market momentum is heading upward.

‘Ultimately Up’

“In a sense, we are actually at relatively low stock prices,” Greenspan, who guided the central bank for more than 18 years, said in an interview with Sara Eisen on Bloomberg Television today. “Indeed I say that so-called equity premiums are still at a very high level, and that means that the momentum of the market is still ultimately up.”

AT&T Inc. and 38 other companies in the S&P 500 report were scheduled to report results today. Profits for members of the gauge probably increased 2.5% during the third quarter as sales climbed 2.2%, according to analysts’ estimates compiled by Bloomberg.

Of the 169 S&P 500 companies that have reported results this season, 76% exceeded analysts’ predictions for profit, while 54% beat sales estimates, according to data compiled by Bloomberg.

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