U.S. Stocks Fall as Earnings Concern Overshadows Bank Plan
By Lynn Thomasson
Oct. 14 (Bloomberg) -- U.S. stocks fell a day after the market's biggest rally since the 1930s as a worsening outlook for earnings forced investors to look beyond a $2 trillion global push to rescue banks.
PepsiCo Inc. lost 12 percent, the most since 1982, after lowering its profit forecast as customers cut back on snacks and soft drinks. Microsoft Corp. and Intel Corp. slid more than 5 percent as analysts said demand for computers is slowing. Morgan Stanley, Citigroup Inc. and Merrill Lynch & Co. added more than 18 percent, sending banking shares to a third straight advance.
``Notwithstanding the government and Treasury's actions focusing on financials, the general economic environment has deteriorated quite a bit in the last five or six weeks,'' said Jonathan Armitage, head of U.S. large-cap equities at the American unit of Schroders, the U.K. manager of $259 billion. ``You're just seeing different parts of the equity market reacting to that.''
The Standard & Poor's 500 Index slipped 5.35 points, or 0.5 percent, to 998 after gaining 12 percent yesterday. The Dow Jones Industrial Average decreased 76.62, or 0.8 percent, to 9,310.99 after a 936-point rally yesterday. The Nasdaq Composite Index decreased 65.24, or 3.5 percent, to 1,779.01. More than two stocks fell for each that rose on the New York Stock Exchange.
The S&P 500 pared its biggest one-day advance since 1939 and the Dow trimmed its best rally since 1933. The S&P 500 is down 32 percent in 2008 as losses and writedowns from mortgage- related investments at financial firms worldwide top $637 billion. The S&P 500 was valued at 19 times the earnings of its companies at the start of trading today, 2.5 percent below its average over the past five years.
PepsiCo, Coca-Cola Slump
PepsiCo fell 12 percent to $54.40. The world's second- biggest soft-drink maker and largest snack producer said it will cut 3,300 jobs after posting profit that fell more than analysts estimated and lowering its forecast for the rest of the year.
Coca-Cola Co. tumbled 7.5 percent to $43.73 for the steepest drop in the Dow average. The biggest soft-drink company has fallen every day except twice in October.
The S&P 500 Consumer Staples Index slipped 2.6 percent. The measure of grocery stores, cigarettes makers and food companies is this year's best performer with a 15 percent loss, half the drop in the broader S&P 500.
Once companies ``start getting weakness in the revenue line, profitability will start to deteriorate,'' said Mark Demos, a Minneapolis-based fund manager at Fifth Third Asset Management, which oversees $21 billion. ``What people are fearing is how bad is it going to get.''
Microsoft, Intel
Microsoft declined 5.5 percent to $24.10. Credit Suisse Group AG reduced its earnings forecasts over the next two years. The company will earn $2.10 a share in fiscal 2009, analyst Philip Winslow said in a research note, down from his previous forecast of $2.13. Profit in the following year will be $2.44 a share, less than a prior estimate of $2.53.
Intel, which releases quarterly results after U.S. exchanges close today, slumped 6.2 percent to $15.93. Friedman Billings Ramsey Group Inc. said earnings estimates are likely too high for the world's biggest chipmaker because of decreased desktop computer demand.
The S&P 500 Information Technology Index declined 3.9 percent.
To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net;
