Wednesday, January 16, 2008

U.S. Stocks Fall on Intel Forecast, Extending Global Tumble

By Eric Martin

Jan. 16 (Bloomberg) -- Technology and energy shares sent the Standard & Poor's 500 Index to its lowest level in 14 months on Intel Corp.'s worse-than-estimated sales forecast and a drop in oil prices.

Intel, the world's largest computer-chip maker, tumbled the most in five years in Nasdaq Stock Market trading after saying first-quarter sales will be as much as 6.9 percent below analysts' estimates. Exxon Mobil Corp. and Chevron Corp. led energy shares lower on the New York Stock Exchange as crude oil retreated to a four-week low.

The S&P 500 lost 7.75, or 0.6 percent, to 1,373.2 and is down 6.5 percent in 2008, marking its worst-ever 11-day start to a year. The Dow Jones Industrial Average fell 34.95, or 0.3 percent, to 12,466.16. The Nasdaq Composite Index sank 23, or 1 percent, to 2,394.59. Asia's benchmark dropped to its lowest level since August and Europe's fell for the fifth time in six days, deepening a global sell-off that's wiped out $2.58 trillion in value this year.

``It's obviously treacherous out there, and Intel did no favors with their earnings announcement,'' said Kurt Brunner, who helps manage $1.5 billion at Swarthmore Group Inc. in Philadelphia. ``There's not a whole lot of places to hide, and the consumer looks weak right now.''

Tech Tumble

Technology and energy shares, which helped lead the market higher last year, accounted for 80 percent of the decline in the S&P 500 today. Technology shares have retreated 17 percent from their Oct. 31 high and are nearing a so-called bear market drop of 20 percent from a peak. Shares of energy producers have lost 10 percent from a Dec. 26 high.

Losses were limited today as JPMorgan Chase & Co. and Wells Fargo & Co. posted results that topped analysts' estimates and Oracle Corp. agreed to buy BEA Systems Inc. About the same number of stocks fell as rose on the NYSE.

The Federal Reserve's so-called Beige Book provided anecdotal evidence the economy is slowing a day before Fed Chairman Ben S. Bernanke is scheduled to testify on the outlook before Congress. Consumer prices increased at a slower pace in December, signaling inflation may decelerate after rising in 2007 by the most in 17 years.

Intel had the biggest drop since 2002, tumbling $2.81, or 12 percent, to $19.88. First-quarter sales will rise to as little as $9.4 billion, the chipmaker said yesterday after the close of trading, less than the $10.1 billion estimate of analysts surveyed by Bloomberg. Lehman Brothers slashed its price estimate on the stock by 23 percent to $23.


Apple Inc. dropped $9.40 to $159.64. The shares slumped for a second day after new products failed to impress investors yesterday.

Oil fell $1.06 to $90.84 a barrel in New York after an Energy Department report showed supplies rose more than expected. Exxon, the largest U.S. oil company, declined $2.49 to $86.53. Chevron Corp., the second-biggest, lost $2.02 to $86.25. ConocoPhillips, the second-largest U.S. refiner, retreated $3.52 to $77.09.

Ambac Financial Group Inc. plunged $8.17, or 39 percent, to $12.97. The second-largest bond insurer will slash its dividend 67 percent and raise more than $1 billion in new capital to preserve its AAA credit rating. Ambac and rival MBIA Inc. are under scrutiny by ratings companies and regulators after their guarantees on collateralized debt obligations and bonds linked to subprime mortgages began plunging in value. MBIA tumbled $2.65 to $13.40.

JPMorgan, Wells Fargo

JPMorgan, which today surpassed Citigroup Inc. to become the second-biggest U.S. bank by market capitalization, gained $2.26, or 5.8 percent, to $41.43. Fourth-quarter revenue rose 7 percent to $17.4 billion, topping analysts' estimates. Net income declined 34 percent, more than analysts projected, to $2.97 billion, or 86 cents a share, after $1.3 billion of writedowns for subprime mortgage investments.

Bank of America Corp., the largest U.S. bank by market value, added 81 cents to $38.69. Citigroup, which yesterday reported a record loss, fell 70 cents to $26.24.

Wells Fargo added 88 cents to $27.37. The biggest bank on the U.S. West Coast reported fourth-quarter profit that beat analysts' estimates. Wells Fargo reported net income of 41 cents a share, more than the 40-cent average of analysts' estimates in a Bloomberg survey.

Financials Gain

The S&P 500 Financials Index, which posted the worst performance in the broader index last year, climbed 1.3 percent today for the biggest gain among 10 industries. Bear Stearns & Co. analysts upgraded the industry's shares to ``market weight,'' saying prices now reflect likely writedowns and lower earnings.

Lehman Brothers Holdings Inc. added $2.35 to $58.06. The biggest underwriter of U.S. bonds backed by home loans won't need to raise capital and may gain market share in some businesses as its rivals struggle, Wachovia Corp. said after a meeting with Lehman's chief financial officer.

Fannie Mae climbed $1 to $37.30. Freddie Mac increased 62 cents to $31.35. Investors speculated the government regulator of the two largest mortgage-finance companies may raise limits on the size of loans the companies can buy or guarantee, said Eric Green, who helps manage $5 billion as senior managing partner at Penn Capital Management in Cherry Hill, New Jersey.

``The market seems to love it,'' he said.

A gauge of homebuilders in S&P indexes rallied 3.7 percent as all 14 of its 15 members advanced.

Hovnanian Enterprises Inc. surged 70 cents, or 12 percent, to $6.63. Kevork Hovnanian, the founder and chairman, spent more than $2 million last week on his first open-market purchases of the homebuilder's shares in more than a decade, according to a filing with the U.S. Securities and Exchange Commission.

BEA Takeover

Oracle, the world's third-biggest software maker, added 61 cents to $21.92 after agreeing to buy BEA Systems for $8.5 billion. Oracle will buy the San Jose, California-based software maker for $19.38 a share in cash, 24 percent above yesterday's closing price. Oracle capitulated to BEA's demands for a higher price after BEA rejected a $17 bid in October. BEA added $2.88 to $18.46.

Mattel Inc., the world's largest toymaker, rose the most since July 2006. Analysts at Needham & Co. upgraded the stock because its price ``more than adequately discounts a host of headwinds'' that include slowing consumer spending, rising costs and last year's toy recalls. Sean McGowan, a Needham analyst in New York, boosted the stock to ``strong buy'' from ``hold.'' Mattel gained $1.34, or 8.1 percent, to $17.99.

Economy Watch

The Fed's Beige Book said economic activity increased ``at a slower pace'' in late November and December with most reports showing ``subdued'' retail spending during the holiday shopping season.

Consumer prices increased 0.3 percent after a 0.8 percent gain in November, the Labor Department said. The median estimate of economists surveyed by Bloomberg News forecast a 0.2 percent rise. Prices excluding food and energy rose 0.2 percent, after climbing 0.3 percent a month earlier.

Fed funds futures trading showed a 36 percent chance policy makers will reduce the benchmark interest rate by 0.75 percentage point to 3.5 percent, down from 40 percent odds yesterday. Futures show a 100 percent chance of at least a 0.5 percentage point cut.

The Russell 2000 Index, a benchmark for companies with a median market value of $529 million, gained 0.4 percent to 699.91. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, fell 0.5 percent to 13,772.97. Based on its decline, the value of stocks decreased by $86.1 billion.

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