Week of July 26, 2010

Most U.S. Stocks Decline After Drop in Durable Goods Orders
By Rita Nazareth

Most U.S. stocks fell, with the Standard & Poor’s 500 Index declining for a second day, as an unexpected decrease in orders for durable goods damped optimism from better-than-estimated corporate profits.

General Electric Co. retreated 1 percent, helping lead declines in industrial companies as the Commerce Department said orders for goods meant to last at least three years unexpectedly retreated 1 percent. Boeing Co. fell 1.5 percent after second- quarter sales missed analysts’ projections. Sprint Nextel Corp., the third-largest U.S. mobile-phone carrier, gained 2.5 percent after reporting a narrower loss than analysts projected.

About two stocks declined for each that rose on U.S. exchanges. The S&P 500 lost 0.2 percent to 1,112.12 as of 1:02 p.m. in New York. The Dow Jones Industrial Average rose 4.85 points, or 0.1 percent, to 10,542.54.

“It’s a disappointment,” Mark Bronzo, an Irvington, New York-based fund manager at Security Global Investors, which oversees $23 billion, said of the durable goods report. “Most people feel that the economy is in a soft patch and the latest data points have been showing that. The earnings season has been good. However, investors will probably sit back and wait until we get more clarity.”

The S&P 500 yesterday briefly erased its loss for the year as earnings at companies from DuPont Co. to Lexmark International Inc. topped estimates and home prices increased more than forecast.

Aircraft Demand

Stock futures reversed earlier gains after the Commerce Department reported that total orders for durable goods unexpectedly dropped, depressed by a decrease in demand for aircraft which is often volatile. Economists forecast total orders would climb 1 percent, according to the median estimate in a Bloomberg News survey.

A gauge of industrial companies retreated as much as 0.7 percent today. GE fell 1 percent to $16.02.

Boeing declined 1.5 percent to $67.57. The world’s second- biggest commercial-jet builder said second-quarter sales declined 9.2 percent to $15.6 billion, missing analysts’ $16.2 billion prediction.

Stocks also fell after a report showed that a gauge of mortgage applications in the U.S. slid last week as refinancing cooled after borrowing costs jumped from a record low. The Mortgage Bankers Association’s index fell 4.4 percent in the week ended July 23, the Washington-based group said today.

‘Scars Remain’

“The scars remain,” said David Rosenberg, the chief economist at Gluskin Sheff & Associates Inc. in Toronto, in a radio interview today with Tom Keene on Bloomberg Surveillance. “The transition to the next sustainable economic expansion is usually between five and seven years. The good news is that we finished two years of this. The glass is half empty. There could be between three to five years to go of this sort of meandering weak growth environment.”

The Fed will publish its summary of commentary on economic conditions, known as the Beige Book, at 2 p.m. in Washington. Last month’s survey showed the U.S. economy strengthened in all 12 regions in April and May, while also noting growth in many was subdued. Fed Chairman Ben S. Bernanke said July 21 “the economic outlook remains unusually uncertain.”

Eastman Kodak Co. tumbled 11 percent to $4.38, the biggest decline in the S&P 500. The photography company reported a second-quarter loss of 51 cents a share. The average analyst estimate in a Bloomberg survey was for a loss of 32 cents.

WellPoint Falls

WellPoint Inc. helped lead health-care companies to the biggest decline -- 1 percent -- among 10 industries in the S&P 500. The biggest U.S. health insurer reported second-quarter sales of $14.5 billion, missing the average analyst estimate in a Bloomberg survey of $14.6 billion. WellPoint slumped 2.9 percent to $51.28.

Projections for the fastest S&P 500 income growth since 1988 are helping investors overcome concern that the economy will sink into its second recession in three years. Earnings have topped analysts’ estimates at more than 80 percent of companies in the S&P 500 that have reported second-quarter results so far, according to data compiled by Bloomberg.

Sprint gained 2.5 percent to $4.95. The third-largest U.S. mobile-phone carrier reported a narrower loss than analysts estimated as demand for the HTC Corp. Evo smartphone helped the company gain wireless subscribers. The second-quarter loss was 15 cents a share, excluding some costs. Analysts projected a loss of 17 cents, the average of 19 estimates compiled by Bloomberg.

Wyndham Rallies

Wyndham Worldwide Corp. jumped 9.9 percent to $25.57, the biggest gain in the S&P 500. The franchiser of Days Inn hotels and Super 8 motels raised its 2010 earnings forecast after second-quarter profit increased on rising travel demand. Full- year earnings per share excluding items will be $1.78 to $1.88. That compares with an earlier forecast of $1.56 to $1.71.

The S&P 500 may fall as much as 15 percent in the next 10 weeks and investors should use further gains in equities as an opportunity to sell, technical analysts at UBS AG said. UBS analysts Michael Riesner and Marc Mueller reiterated their forecast that the U.S. benchmark gauge may decline to between 944 and 1,000, in a report dated yesterday.

“Anticipating another strong tactical down-leg below 1,000 in the S&P 500, we are sticking to our recent comments and would use any kind of strength in July to sell,” Zurich-based Riesner and Mueller wrote.

-- With assistance from Tom Keene, Ken Prewitt and Emily Haas- Godsil in New York, Adam Haigh in London and Julie Cruz in Frankfurt. Editors: Michael P. Regan, Joanna Ossinger.