U.S. Stocks Retreat as Oil Slumps; Microsoft, Amazon Rally

By Elizabeth Stanton

Oct. 23 (Bloomberg) -- U.S. stocks fell, wiping out a weekly gain for the Standard & Poor’s 500 Index, as a drop in oil weighed on energy producers and disappointing results at the nation’s largest railroad dragged down industrial shares.

Exxon Mobil Corp. and Schlumberger Ltd. led energy producers lower as crude slid for a second day. Industrial shares in the S&P 500 fell 1.3 percent as a group, led by railroad stocks, after Burlington Northern Santa Fe Corp. forecast profit that missed analyst estimates. Technology shares posted the smallest drop among 10 groups as Microsoft Corp. and Amazon.com Inc. jumped on better-than-estimated earnings.

The S&P 500 dropped 0.7 percent to 1,084.89 at 11:16 a.m. in New York. The Dow Jones Industrial Average lost 67.64 points, or 0.7 percent, to 10,013.67. The Nasdaq slipped 0.1 percent to 2,162.74 after earlier climbing as much as 1.2 percent.

“You have this skepticism in the equity market that is frankly irrational,” said Richard Campagna, chief executive officer of 300 North Capital LLC in Pasadena, California, which manages $600 million. “Given that the third quarter was the tail end of the recession and earnings are this good tells you earnings are going to snap back much faster than people expect.”



The S&P 500 is trading at its highest valuation relative to reported operating earnings in more than five years after climbing 62 percent since March 9 as the U.S. lent, spent or guaranteed $11.6 trillion to combat the worst recession since the 1930s. Worldwide, governments from Beijing to Berlin spent $12 trillion to help end the global contraction, according to data from the Washington-based International Monetary Fund.

The S&P 500 closed at a one-year high on Oct. 19, and earnings at companies from Caterpillar Inc. to Morgan Stanley topped estimates this week.

Earnings Analysis

Profits beat estimates at about 80 percent of the companies in the index that have released results, according to Bloomberg data. That would mark the highest proportion in data going back to 1993. Earnings fell for a ninth straight quarter in the July- to-September period, according to estimates compiled by Bloomberg, and are projected to return to growth in the final three months of the year.

Exxon, the largest oil producer, slumped 1.4 percent to $73.43. Schlumberger, the biggest oilfield-services company, sank 3.5 percent to $66.17.

Crude for December delivery fell $1.04, or 1.3 percent, to $80.15 a barrel in New York Mercantile Exchange trading. Futures are up 80 percent this year and touched a one-year high of $82 a barrel on Oct. 21.

Burlington Northern Santa lost 6.6 percent to $70.05. The largest U.S. railroad forecast fourth-quarter profit of $1.20 a share at most, trailing the average analyst estimate of $1.36 in a Bloomberg survey.

Microsoft climbed 7 percent to $28.44. The world’s largest software maker posted a smaller drop in profit than analysts estimated after slashing costs to make up for falling sales.

Amazon.com soared 23 percent to $114.66. Third-quarter net income increased 69 percent after discounts and the Kindle electronic book reader fueled sales.