By Eric Martin, Bloomberg
New York: The Nasdaq Composite Index fell, snapping a three-day advance, after forecasts from Motorola Inc. and Intuit Inc. dimmed the earnings outlook for technology companies.
A surge in crude oil lifted energy shares to their biggest rally in almost two months, boosting the Standard & Poor’s 500 Index and Dow Jones Industrial Average.
Motorola, the world’s second-biggest maker of mobile phones, slumped to its lowest since June 2005 after predicting a loss for this quarter. Intuit was the worst performer in the S&P 500 after the financial software maker failed to raise its sales estimate.
Analysts predict technology industry profits may climb by 14 % this year and 17 % in 2008, the fastest among 10 industries, according to estimates compiled by Bloomberg. The shares have gained 0.2 % this year for the second-worst performance as a group after financials.
“A lot of tech companies are probably going to have a difficult year,” said Christopher Orndorff, who oversees $50 billion as head of equity strategy at Payden & Rygel in Los Angeles. “The rally in technology in the fourth quarter of last year was definitely overdone. We don’t think the fundamentals are so strong.”
The Nasdaq lost 4.58, or 0.2 %, to 2451.34 at 2:38 p.m. in New York. The S&P 500 increased from 0.20 to 1435.24. The Dow average added 9.78, or 0.1 %, to 12,457.30.
Stocks yesterday posted their biggest gain in eight months, wiping away most of their losses for the year, after the Federal Reserve indicated it is no longer biased toward higher interest rates. In dropping its tilt toward higher rates, the Fed left itself room to lower borrowing costs should mortgage delinquencies increase and hurt the financial industry.
Some investors said that rally may have been overdone.
“The Fed took the rate rise out of the equation -- it didn’t necessarily inject a firm ‘easing is coming’ stance,” said Bill Schultz, who helps manage $750 million as chief investment officer at McQueen Ball & Associates in Bethlehem, Pennsylvania. “This moves them into the position where they can ease if the subprime contagion gets worse.”
About the same number of stocks fell and rose on the New York Stock Exchange. Some 1.1 billion shares changed hands on the Big Board, 7.8 % more than the same time a week ago.
Technology shares slid by 0.5 % for the second-steepest loss among 10 industries.
Motorola tumbled from $1.13 to $17.61. The company said profit and sales will be “substantially” below its forecast this year because of plunging mobile-phone prices, signaling a turnaround may take longer than investors anticipated. Motorola also named a new president and detailed a plan to step up its share buyback program amid a proxy fight with shareholder Carl Icahn.
This marks the second straight quarter that Motorola missed its forecast after price cuts to compete with Nokia Oyj slashed profits on its handsets.
Intuit Inc. slumped $2.50, or 8.3 %, to $27.50 after the maker of TurboTax and Quicken software failed to boost its forecast. Intuit reaffirmed its estimate that sales would rise 10 % to 15 % in the fiscal year ending in July. UBS AG analyst Heather Bellini had written in a 16 March note that annual growth might be as high as 21 %.
Stocks dropped earlier as a measure of the US economy’s future fell the most in a year. The Conference Board said its index of leading economic indicators slid 0.5 % in February after a 0.3 % drop the prior month that was initially reported as a gain. The gauge points to the direction of the economy over the next three to six months.
Mortgage lenders fell after a Fed official said the central bank is “concerned” about stress in the mortgage market.
“Some borrowers are clearly experiencing significant financial and personal challenges and more subprime borrowers may join these ranks in coming months,” Roger Cole, the Fed’s director of Banking Supervision and Regulation, said in prepared testimony to the Senate Banking Committee.
Countrywide Financial Corp., the top mortgage lender, slid from 74 cents to $36.21. Washington Mutual Inc., the largest U.S. savings and loan, fell 85 from cents to $42.08.
Energy stocks, which make up about a 10th of the S&P 500, climbed by 2.1 % for the best performance among two dozen industries. Oil-related companies were the three biggest contributors to the benchmark index.
Exxon Mobil Corp. added $1.45 to $74.68, Chevron Corp. rose $1.69 to $73.03 and ConocoPhillips increased $1.92 to $69.09. Crude oil futures jumped from 3.5 % to $61.69 a barrel in New York, on speculation that demand will jump as US refiners increase output in preparation for the summer driving season.
“You see gasoline demand increasing and that’s driving up the energy sector,” said McQueen Ball’s Schultz.
Procter & Gamble Co. increased from 79 cents to $63.75. The largest US maker of consumer products was upgraded at Bear Stearns & Co. to “outperform” from “peer perform.” The stock is cheap, given the company’s earnings history and its ability to meet “double-digit” growth estimates, said analysts.
“In today’s climate, this is one of the companies you need to own because of the exposure overseas in stable growth products,” said Ted Parrish, who helps manage $1.2 billion at Henssler Financial Group in Marietta, Georgia.