BLBG: U.S. Stocks Extend Global Drop as Bank of America, Intel Slump
By Sapna Maheshwari
Nov. 3 (Bloomberg) -- U.S. stocks fell, extending a global slide, as a wider-than-estimated loss at UBS AG and concern governments will lift interest rates further overshadowed Warren Buffett’s $34 billion purchase of Burlington Northern Santa Fe Corp. The dollar advanced, helping to send commodities lower.
Citigroup Inc. and Bank of America Corp. lost more than 2 percent as UBS, Switzerland’s largest bank, reported a fourth straight quarterly loss. Intel Corp. fell 2.4 percent as Morgan Stanley lowered its rating on U.S. semiconductor stocks to “cautious.” Burlington Northern surged 28 percent after Buffett made his “all-in wager” on the nation’s economic future. Black & Decker Corp. surged 24 percent after agreeing to be purchased by Stanley Works.
The Standard & Poor’s 500 Index slipped 0.7 percent to 1,035.37 as of 9:36 a.m. in New York. The Dow Jones Industrial Average decreased 64.84 points, or 0.7 percent, to 9,724.6. Stocks in Europe and Asia also slid as Australia raised its benchmark interest rate for the second straight month.
“The market is ignoring anything positive and it’s getting obsessed with anything negative or modestly negative,” said David Katz, chief investment officer at Matrix Asset Advisors in New York, which manages $1.2 billion. “The overall banking group, most have reported in line to better-than-expected numbers. UBS did not, and a month ago, the market would have overlooked it and said it was UBS-specific and Europe- specific.”
Retreat From Year’s High
The S&P 500 has fallen more than 5.5 percent from a one- year high on Oct. 19 as lower-than-estimated new-home sales and declines in consumer spending and confidence fueled speculation a seven-month rally in equities outpaced prospects for an economic recovery. The benchmark index for U.S. stocks is still up 53 percent from a 12-year low in March.
The collapse of the U.S. property market in 2007 triggered $1.66 trillion of writedowns and credit losses at banks and other financial institutions and sent the global economy into its first recession since World War II, according to data compiled by Bloomberg.
Federal Reserve Chairman Ben S. Bernanke, who convenes a meeting of the Federal Open Market Committee today, is gambling that come March, he can stop the purchases of mortgage-backed securities that have propped up the housing market. The FOMC will release its monetary policy statement tomorrow.
U.S. stocks rose yesterday as Ford Motor Co. reported profit that beat expectations and gauges of manufacturing, home sales and construction spending topped projections.
Earnings Analysis
Of 357 companies in the S&P 500 that have reported quarterly earnings since Oct. 7, 84 percent exceeded estimates, according to data compiled by Bloomberg.
Citigroup, the recipient of a $45 billion government infusion, fell 3.3 percent to $3.86 in New York, while Bank of America, the largest U.S. lender, declined 2.3 percent to $14.30.
UBS said its third-quarter net loss was 564 million Swiss francs ($552 million), compared with a 283 million-francs profit a year earlier. Analysts surveyed by Bloomberg estimated a loss of 337 million francs.
Separately, Royal Bank of Scotland Group Plc said it will sell its insurance units and some branches as the lender took an additional 25.5 billion pounds ($41.6 billion) of state aid, making its rescue the world’s most expensive bank bailout.
Energy Slumps
Chesapeake Energy Corp. declined 3.6 percent to $23.27. The best-performing natural-gas producer last quarter in the S&P 500 said third-quarter net income fell to $192 million as the recession damped demand for the fuel.
Crude oil futures today fell 1.5 percent to below $78 a barrel in New York, trimming yesterday’s gains. ConocoPhillips declined 1.5 percent to $49.23.
“There’s clear evidence that the economic ‘V’ that market participants have been hoping for is just not materializing,” said Neil Dwane, who helps oversee about $80 billion as chief investment officer at Allianz Global Investors’ RCM unit in Frankfurt. He spoke in a Bloomberg Television interview.
Intel, the world’s biggest computer-chip maker, slid 2.4 percent to $18.55 as Morgan Stanley reduced its stance on semiconductor stocks and downgraded Intel to “equal-weight.” Texas Instruments Inc., the second-largest U.S. chipmaker, dropped 1.1 percent to $23.20.
Railroad Valuations
Burlington Northern jumped 28 percent to $97.71. At $100 a share, Buffett is paying 18.2 times Burlington’s estimated 2010 earnings of $5.51, according to the average analyst projection in a Bloomberg survey.
That compares with the 13.4 multiple for the S&P 500 as of yesterday’s close. Omaha, Nebraska-based Union Pacific Corp.’s ratio was 13, while Jacksonville, Florida-based CSX Corp.’s was 13.1, Bloomberg data show. They are the biggest U.S. railroads behind Burlington by 2008 sales. On March 9, Burlington fetched 7.8 times next year’s profit projection.
Black & Decker surged 24 percent to $58.73. The maker of DeWalt power drills and Price Pfister faucets agreed to be purchased by Stanley Works for $3.5 billion in stock. Stanley Works climbed 4.7 percent to $47.27.
Cognizant Technology Solutions Corp. added 7.4 percent to $41.65. The computer-services provider to Aetna Inc. and Kimberly-Clark Corp. said third-quarter profit rose 21 percent as sales increased more than analysts anticipated.
Viacom Inc., the owner of MTV Networks and the Paramount Pictures film studio, said third-quarter profit gained 15 percent, more than analysts’ estimated, on higher box-office revenue and an easing advertising slump. The company’s Class B shares gained 0.8 percent to $28.26.
A report from the Commerce Department at 10 a.m. New York time may show orders placed with U.S. factories rose 0.8 percent in September from the previous month, according to the survey median. A gain would be the fifth in the past six months.
