U.S. Stocks Decline to One-Month Low as Hewlett-Packard Tumbles

May 17, 2011, 2:56 PM EDT By Rita Nazareth

May 17 (Bloomberg) -- U.S. stocks retreated, sending benchmark indexes to one-month lows, as a reduced forecast at Hewlett-Packard Co. and an unexpected decline in housing starts damped optimism about the economy.

Hewlett-Packard, the biggest personal-computer maker, tumbled 7.2 percent after also missing analysts’ profit projections as consumers shunned PCs. D.R. Horton Inc. and KB Home fell at least 1.8 percent, pacing declines in homebuilders. Caterpillar Inc. and 3M Co. slumped more than 1.8 percent after figures from the Federal Reserve showed that industrial production in the U.S. unexpectedly stalled in April.

The Standard & Poor’s 500 Index declined 0.4 percent to 1,324.94 at 2:32 p.m. in New York, falling for a third straight trading day. The Dow Jones Industrial Average retreated 100.58 points, or 0.8 percent, to 12,447.79.

“There’s just not a whole lot to drive the stock market higher right now,” said Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co. “The housing improvement has been pushed down the road. Some big companies are cutting forecasts. The European debt crisis is in everyone’s minds. We were off for a good start this year. I see some pause as investors turn a bit more defensive.”

Economic Surprise

The S&P 500 has extended a two-week decline amid investors’ concern that Greece may have to restructure its debt and as economic data missed forecasts. Citigroup Inc.’s U.S. Economic Surprise Index, which gauges the rate at which data is exceeding or trailing economists’ estimates, turned negative in May and is at its lowest level since August. The index had climbed to a record in March.

Still, analysts have raised full-year earnings estimates in the S&P 500 index by 2.2 percent since April as more than two thirds of companies that reported earnings beat projections.

Stock futures turned lower today after government data showed that work began in April on 523,000 houses at an annual pace, down 11 percent from the prior month and less than the 569,000 median forecast of economists surveyed by Bloomberg News. Figures from the Commerce Department also showed that building permits, a sign of future construction, decreased.

Output at factories, mines and utilities was unchanged after a 0.7 percent gain in March, figures from the Federal Reserve showed, led by a drop in auto production after parts supplies were disrupted by the earthquake and tsunami in Japan.

Failed to Restore

European finance ministers for the first time floated the idea of talks with bondholders over extending Greece’s debt- repayment schedule, saying that last year’s 110 billion-euro ($156 billion) rescue has failed to restore the country to financial health. Europe would consider “reprofiling” Greek bond maturities as part of a package including stepped-up sales of state assets and deeper spending cuts, Luxembourg Prime Minister Jean-Claude Juncker said late yesterday.

The probability of Greece defaulting or restructuring its debt has increased since the arrest of International Monetary Fund head Dominique Strauss-Kahn, Pacific Investment Management Co.’s Mohamed El-Erian said.

“Don’t underestimate how important Dominique Strauss-Kahn was in coordinating action” among European nations, El-Erian, the chief executive officer of Pimco, said in a Bloomberg Television interview on “In the Loop” with Betty Liu. “It’s the worst possible time to lose your general. You need the IMF to coordinate this global healing.”

Hewlett-Packard Tumbles

Hewlett-Packard tumbled 7.2 percent to $36.92. Full-year sales will be $129 billion to $130 billion and earnings excluding some items will be at least $5 a share, Palo Alto, California-based Hewlett-Packard said. Analysts estimated sales of $130.3 billion and earnings of $5.24, the average projections in a Bloomberg survey.

The predictions came a day after Bloomberg News reported Chief Executive Officer Leo Apotheker had sent a downbeat memo warning his staff of “another tough quarter” in the period through July. Hurt by competition from tablet computers such as Apple Inc.’s iPad and falling profitability at its services unit, Hewlett-Packard may need to reduce jobs to lower expenses.

“They probably have to do some cost cutting,” said Kulbinder Garcha, an analyst at Credit Suisse Group AG in New York. “They’ll have to drive for further efficiency. Can they do that easily? No, it’ll probably take some time.”

Homebuilders Slump

A gauge of homebuilders in S&P indexes fell 1 percent as 11 of its 12 stocks retreated. D.R. Horton, the second-largest U.S. homebuilder by revenue, declined 1.8 percent to $11.46. KB Home slumped 2.1 percent to $10.93.

Industries most-tied to economic growth led the declines in the S&P 500. The Morgan Stanley Cyclical Index of 30 stocks dropped 1.5 percent.

Caterpillar, the world’s largest maker of construction equipment, slid 3.4 percent to $102.46. 3M, the maker of products including Scotch tape and Post-it Notes, fell 1.9 percent to $93.66.

JPMorgan Chase & Co. rose 2.2 percent to $43.81. Chief Executive Officer Jamie Dimon said banks are starting to lend again. Dimon also said four businesses may add more than $500 million each to profit during the next five to seven years: commercial banking, commodities, private-client services and international expansion.

“We have enormous growth opportunities both in the U.S. and overseas,” Dimon said at the New York-based company’s annual shareholders’ meeting in Columbus, Ohio. He said the bank plans to open 20 international branches next year for wealthy customers and corporations with investments overseas.

Home Depot Inc. added 1.4 percent to $37.50. The largest U.S. home-improvement retailer said first-quarter profit rose 12 percent, meeting analysts’ estimates, as operating expenses fell faster than sales. Home Depot cut expenses including payroll and advertising in the quarter, countering a slight drop in revenue.

--Editors: Jeff Sutherland, Michael Regan

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

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

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