Thursday, July 17, 2008

.S. Futures Fall on Google, Merrill, Microsoft Earnings Misses

By Lynn Thomasson and Elizabeth Stanton

July 18 (Bloomberg) -- U.S. stock-index futures retreated after Google Inc., Merrill Lynch & Co. and Microsoft Corp. missed analysts' profit estimates, indicating the market's two-day rally may be short-lived.

Google, Merrill and Microsoft slumped more than 6 percent in New York. Google trailed forecasts for only the third time since 2005 as growth in clicks on Internet advertisements slowed. Merrill fell short of projections for the fourth straight quarter. Microsoft cut its profit estimate. The Dow Jones Industrial Average completed its steepest two-day advance since October 2002 yesterday after JPMorgan Chase & Co.'s earnings beat forecasts and falling oil sparked an advance in consumer shares.

Standard & Poor's 500 Index futures expiring in September dropped 8.70 points, or 0.7 percent, to 1,244.70 as of 7:14 a.m. in Tokyo. Dow futures lost 63 points, or 0.6 percent, to 11,338. PowerShares QQQ, an exchange-traded fund tracking the Nasdaq-100 Index, fell 1.8 percent to $44.81 in New York.

``We're still in the middle innings of this financial crisis,'' said James Thorne, who helps oversee more than $13 billion as chief capital market strategist at MTB Investment Advisors in Baltimore. ``It's going to be a very long and slow workout for this market.''

About $14 trillion has been wiped off the value of global equities since October as almost $423 billion in credit-related losses prolong the global economy's slump and rising commodity prices stoke inflation. Among the 23 industrialized nations in the MSCI World Index, only Canada averted a bear-market decline of 20 percent.

Bear Market Retreat

The S&P 500 slid into a bear market last week as oil rose to a record and the U.S. Treasury moved to shore up Fannie Mae and Freddie Mac. Financial institutions led the index's retreat in 2008, losing 29 percent.

Google Inc. dropped 7.5 percent to $493.48. The owner of the most popular Internet search engine posted second-quarter profit of $3.92 a share, excluding costs such as stock compensation. Analysts estimated $4.73 on average in a Bloomberg survey.

Merrill Lynch fell 6.1 percent to $28.85. The third-biggest U.S. securities firm reported a $4.65 billion quarterly loss, its fourth straight, as it added to its credit-market writedowns.

Merrill Chief Executive Officer John Thain is selling assets and cut about 4,200 jobs in the first half of the year to stem record losses and a 43 percent drop in Merrill's share price during the past 12 months. The company announced $9.7 billion of writedowns yesterday; analysts at Citigroup Inc., Oppenheimer & Co. and Wachovia Corp. had predicted the company would book charges of at least $5 billion.

23% Stock Slump

Microsoft Corp. retreated 6.4 percent to $25.76. The world's biggest software maker reported 2.3 percent less fourth-quarter profit than analysts estimated. The company, whose shares have fallen 23 percent this year, predicted first-quarter earnings as low as 47 cents a share. Analysts polled by Bloomberg anticipated 49 cents a share, on average.

During regular trading, the S&P 500 jumped 14.96, or 1.2 percent, to 1,260.32. The measure gained 1.7 percent so far this week. The Dow added 207.38, or 1.9 percent, to 11,446.66, bringing its two-day rally to 4.4 percent.

JPMorgan, the largest U.S. bank by market value, led financial shares during the regular session to their biggest-ever two-day surge as profit beat estimates by 22 percent. Huntington Bancshares Inc., BlackRock Inc. and Comerica Inc. also climbed on earnings that exceeded projections. Home-improvement chains Home Depot Inc. and Lowe's Cos. led gains in all 29 companies in the S&P 500 Retailing Index as oil slid below $130 a barrel for the first time in a month.

`Long Energy, Short Financials'

``The trade that's been the big winner has been long energy and short financials; the last couple of days maybe we're seeing a reversal of that,'' Gavin Graham, chief investment officer at Guardian Group of Funds Ltd. in Toronto, told Bloomberg Television. Guardian Group manages $5.7 billion.

For the second straight day, energy producers were the biggest drag on the market among 10 industries. The S&P 500 rallied the most since April yesterday, rebounding from the lowest level since 2005, after better-than-forecast earnings at Wells Fargo & Co. sparked a 12 percent gain in the S&P 500 Financials Index and oil extended a two-day tumble to more than $10 a barrel.

Earnings surpassed analysts' estimates by an average of 6.7 percent for the 51 companies in the S&P 500 that released second- quarter results as of the close of U.S. trading yesterday, data compiled by Bloomberg show. The entire index trailed estimates by an average of 3.6 percent in the first quarter, a period in which the benchmark gauge of American equities slumped 9.9 percent.

Analysts as of July 11 had forecast an average 14 percent decline in second-quarter profits for S&P 500 companies, led by a 69 percent tumble in earnings at financial companies. So far, the group's earnings have slipped 4.9 percent, with financial profits declining 32 percent, Bloomberg data show.

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