U.S. Stocks Fall; Tech Shares Slump

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By Rita Nazareth - Dec 21, 2011 6:17 PM GMT+0100

U.S. stocks fell, following yesterday’s rally, as Oracle Corp. tumbled on disappointing earnings and optimism faded about the European Central Bank’s plan to lend euro-area banks a record amount for three years.

Technology shares had the biggest decline in the Standard & Poor’s 500 Index among 10 industries, dropping 2.7 percent as a group. Oracle plunged 13 percent, the most since 2002. Walgreen Co. (WAG), the largest U.S. drugstore chain, slumped 3.8 percent as profit trailed estimates. Emerson Electric Co. (EMR) retreated 6.2 percent, pacing losses in industrial companies, after reporting November orders that were lower than analysts’ projections.

The S&P 500 decreased 0.8 percent to 1,231.93 at 12:14 p.m. New York time. The benchmark gauge yesterday rallied 3 percent. The Dow Jones Industrial Average lost 80.15 points, or 0.7 percent, to 12,023.43 today. The Nasdaq Composite Index slumped 1.9 percent to 2,555.43.

"The question is: Are negative headlines on the European situation starting to affect decision making and will that jeopardize the recovery?" Kevin Shacknofsky, who helps manage about $5 billion for Alpine Mutual Funds in New York, said in a telephone interview. "The key thing about the weakness in Oracle (ORCL) is that people were delaying making decisions investing in technology. There’s a lot of work to do to solve the European crisis. With sentiment as weak as it is, it’s a big problem."

Today’s decline extended this year’s drop in the S&P 500 to 2 percent. The measure tumbled 19 percent from this year’s high in April through Oct. 3 amid concern Europe’s debt crisis would derail global growth. Since then, it has rebounded 12 percent on better-than-estimated American economic data and steps taken by European leaders to tame the crisis.

Fading Optimism

Spanish two-year government notes fell for the first time in nine days amid fading optimism that the ECB’s three-year loans to euro-area banks will restore confidence in sovereign borrowers. The ECB awarded 489 billion euros ($645 billion) in 1,134-day loans, the most ever in a single operation and more than economists’ median estimate of 293 billion euros in a Bloomberg News survey.

"What the ECB is doing is just trying to prevent a disorderly deleveraging of European bank assets," Barry Knapp, the New York-based head of U.S. equity strategy at Barclays Plc, said in a telephone interview. "By no means it solves the financing problem for Italy or Spain or for the banks."

In the U.S., the number of existing homes sold was revised lower by an average 14 percent since 2007, the National Association of Realtors reported today, magnifying the depth of the slump that contributed to the last recession.

Technology (S5INFT) Shares

Measures of software, chips and computer makers tumbled at least 1.5 percent, for the biggest declines among 24 industries in the S&P 500.

Oracle plunged 13 percent to $25.24. Business-software companies are taking longer to close deals as companies gird for slow economic growth in the U.S. and the possibility of a recession in Europe next year, said Rick Sherlund, an analyst at Nomura Holdings Inc.

International Business Machines Corp. (IBM), the biggest computer-services company, slipped 4.1 percent to $179.49. Hewlett-Packard Co. (HPQ), the largest computer maker, slid 2.9 percent to $25.15. Cisco Systems Inc. (CSCO), the world’s biggest maker of networking equipment, dropped 2.6 percent to $17.94.

Walgreen slumped 3.8 percent to $32.24. A dispute between the company and Express Scripts Inc. (ESRX), an employee-benefits manager, led to a loss of customers, hurting pharmacy demand. CVS Caremark Corp. (CVS) and Rite Aid Corp. are trying to grab customers amid the standoff over the contract.

Orders Drop

Emerson Electric tumbled 6.2 percent to $46.59. The St. Louis-based company reported trailing three-month orders for November rose 4 to 5 percent, down from 8 percent in October and below the guidance range of 5 to 7 percent, said Julian Mitchell, a New York-based analyst with Credit Suisse.

KB Home (KBH) lost 6.5 percent to $7.24. The Los Angeles-based homebuilder that targets first-time buyers reported a quarterly profit that beat analysts’ estimates as sales and orders rose.

Nike Inc. (NKE) rallied 2.8 percent to $96.24. The world’s largest sporting-goods company reported second-quarter profit that topped analysts’ estimates as sales of running shoes surged in North America.

Research In Motion Ltd. (RIM) surged 10 percent to $13.77 after reports Microsoft Corp. (MSFT) and Nokia Oyj (NOK1V) mulled a bid while Amazon.com Inc. (AMZN) also considered buying the BlackBerry maker.

Turned Down

RIM “turned down takeover overtures” from Amazon because it wanted to fix shortcomings independently, Reuters reported yesterday. A Wall Street Journal article said Microsoft and Nokia “flirted with the idea of making a joint bid” in recent months. Both publications cited unidentified people familiar with the respective matters.

Microsoft declined 1.6 percent to $25.61. Amazon slumped 3.6 percent to $175.93.

Anyone expecting the so-called January effect to turn shares of smaller U.S. companies into market leaders may end up waiting in vain, according to Steven G. DeSanctis, a strategist at Bank of America Merrill Lynch.

“We do not think we will see a January effect occur in the remainder of this month or next month,” DeSanctis wrote yesterday in a report.

Smaller companies have only kept pace with larger ones since the end of October. In past years, they rallied during the period in anticipation of further gains in January. Price swings linked to concern that the U.S. and European economies are faltering explain why the effect is unlikely to surface, according to DeSanctis, a small-cap stock specialist based in New York.

In January, small caps beat large caps 73 percent of the time since 1926, according to his analysis of figures from the University of Chicago’s Center for Research in Security Prices. The percentage is the highest for any month of the year. Small caps also had their best monthly performance in January, with an average gain of 4 percent, DeSanctis wrote.

To contact the reporter on this story: Rita Nazareth in Sao Paulo at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net