U.S. Stocks Retreat as Dow Halts Eight-Day Rally; GE, Home Depot Tumble

U.S. stocks fell, ending the Dow Jones Industrial Average’s longest winning streak in two months, following worse-than-estimated sales at Bank of America Corp., Citigroup Inc. and General Electric Co. and consumer confidence that sank to the lowest level in a year.

Bank of America and Citigroup dragged financial companies in the Standard & Poor’s 500 Index to a 2.9 percent loss, the most among 10 industries. Home Depot Inc. slumped 4.1 percent, helping lead declines among consumer companies, after U.S. retail sales dropped for a second month in June. GE slipped 2.7 percent after missing revenue forecasts. Goldman Sachs Group Inc. rallied 5.9 percent on its $550 million settlement of the federal government’s fraud lawsuit.
The Standard & Poor’s 500 Index lost 1.2 percent to 1,064.88 this week. It had jumped 7.1 percent between July 2 and July 13. The Dow slipped 100.13 points, or 1 percent, to 10,097.90 and broke an eight-day winning streak on July 15.
“The market is trying to figure out what’s this economy going to look like, what are earnings going to look like a year from now -- the news we’ve been seeing doesn’t paint a very pretty picture,” said Malcolm Polley, who oversees $1 billion as chief investment officer at Stewart Capital Advisors in Indiana, Pennsylvania. “The consumer’s tapped out, and there’s really no reason to see him coming back any time real soon.”
Europe, Oil Spill
The S&P 500 has lost 13 percent since April 23 amid concern the European debt crisis will slow global growth and after BP Plc’s Gulf of Mexico oil spill drove down energy stocks. On July 14, the Commerce Department said sales at U.S. retailers fell 0.5 percent in June. Yesterday, the Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased to 66.5, the lowest since August and less than the most pessimistic forecast of economists surveyed by Bloomberg News.
Second-quarter earnings season started this week when Alcoa Inc. posted profit of 13 cents a share, more than analysts projected, as higher metal prices boosted sales. S&P 500 companies are projected to increase profits by 34 percent in 2010 and 18 percent in 2011, the fastest two-year gain since 1995, according to analyst estimates compiled by Bloomberg.
Of the 23 companies in the S&P 500 that reported since July 12, all but three have topped forecasts for earnings per share, Bloomberg data show. Revenue for the group that has reported so far has increased 2.6 percent, with 17 of 23 companies beating the average analyst estimates, according to the data.
Two Quarters Away
Bank of America, the largest U.S. lender, lost 7.5 percent to $13.98 this week, after second-quarter net income and sales slid and Chief Executive Officer Brian T. Moynihan said “sustained activity” won’t come for at least two more quarters. Citigroup shares fell 3.5 percent to $3.90.
GE, the world’s largest maker of jet engines and power- plant turbines, reported second-quarter sales of $37.4 billion, missing the average analyst estimate by 2.3 percent. The stock retreated 2.7 percent to $14.55.
“We got some really good earnings news, as expected, but the disappointment came on the revenue side,” said Wasif Latif, who oversees $18 billion of U.S. equity funds at USAA Investment Management Co. in San Antonio. “Sooner or later the top line has to kick in and start growing.”
Google Inc., the owner of the world’s most popular search engine, missed analyst profit estimates after ramping up spending to compete with Facebook Inc. The shares decreased 1.7 percent to $459.61.
Higher Expenses
Mattel Inc., the world’s largest toymaker, slumped 7.8 percent to $20.81. Fees from a lawsuit and higher personnel costs raised expenses and profit missed analysts estimates in the second quarter.
Apple Inc. declined 3.7 percent to $249.90. The company announced plans to give every iPhone 4 buyer a free rubberized case called a Bumper in an effort to address complaints about lost reception. Chief Executive Officer Steve Jobs said yesterday that Apple was “working our butts off” to figure out the problem, after Consumer Reports decided not to recommend the phone, blaming the antenna glitch.
Financial firms declined the most of 10 S&P 500 industry groups, slumping 2.9 percent. Shares of industrial companies, energy businesses and raw-material producers lost more than 1.8 percent each.
Stocks reversed gains from the previous week, when the S&P 500 rallied on an improved outlook for the economic recovery. A government report that week showed U.S. retail sales grew at the fastest pace in four years, while the International Monetary Fund raised its growth forecast for 2010.
‘Sell the Rallies’
Investors should “sell the rallies” as the S&P 500 will soon enter a correction, falling to between 944 and 1,000 at the end of the third quarter, according to Michael Riesner and Marc Mueler, technical analysts at UBS AG. The rise last week negated a so-called head-and-shoulders formation in which prices form three consecutive peaks, with the middle being the highest.
Goldman Sachs, the most profitable firm in Wall Street history, increased 5.9 percent this week to $146.17. The New York-based firm agreed to pay $550 million and change business practices to settle U.S. Securities and Exchange Commission claims that it misled investors in collateralized debt obligations linked to subprime mortgages.
Boeing Co. fell 4.3 percent this week to $61.90 after saying it may delay the delivery of its 787 Dreamliner to 2011 from late this year. The Chicago-based company is still working to get the composite-plastic jet to launch customer All Nippon Airways Co. by the end of 2010.
Vivus Inc. plunged the most in the Russell 2000 Index of small companies, losing a record 53 percent to $5.41. U.S. reviewers recommended against approval of its Qnexa diet pill, citing the potential risks of depression, birth defects and increased heart rate. The decision may threaten makers of competing drugs, analysts said.