United States stocks fall amid Europe concerns


US stocks fell, following yesterday’s rally, as Oracle Corp. tumbled on disappointing earnings and optimism faded about the European Central Bank’s plan to lend euro-area banks a record amount for three years.
Oracle, the second-largest software maker, dropped 13 per cent, the most since 2002. Walgreen Co., the largest US drugstore chain, slumped 5.3 per cent as profit trailed estimates after customers switched to rival drugstore chains. Research In Motion Ltd. surged 6.7 per cent on reports that Microsoft Corp. and Nokia Oyj considered a joint bid and Amazon.com Inc. had made separate overtures to buy the BlackBerry maker.
The Standard & Poor’s 500 Index decreased 0.4 per cent to 1,236.70 at 10:27 a.m. New York time. The benchmark gauge yesterday rallied 3 per cent. The Dow Jones Industrial Average lost 28.53 points, or 0.2 per cent, to 12,075.05 today.
“Is reality starting to catch up?” Kevin Shacknofsky, who helps manage about $5 billion for Alpine Mutual Funds in New York, said in a telephone interview. “The key thing about the weakness in Oracle is that people were delaying making decisions investing in technology. The question is — are negative headlines on the European situation starting to affect decision making and will that jeopardize the recovery? There’s a lot of work to do to solve the European debt crisis. With sentiment as weak as it is, it’s a big problem.”
Benchmark gauges rose yesterday as better-than-estimated housing starts added to expectations the world’s largest economy will weather Europe’s debt crisis. Yesterday’s gain trimmed this year’s decline in the S&P 500 to 1.3 per cent. The measure was still down 9 per cent from this year’s high in April amid concern that Europe’s crisis may slow down the global economy.

Most Ever

Stocks fell as the ECB awarded 489 billion euros ($645 billion) in 1,134-day loans, the most ever in a single operation and more than economists’ median estimate of 293 billion euros in a Bloomberg News survey. “What the ECB is doing is just trying to prevent a disorderly deleveraging of European bank assets,” Barry Knapp, the New York-based head of US equity strategy at Barclays Plc, said in a telephone interview. “By no means it solves the financing problem for Italy or Spain or for the banks.”
The head of the world’s biggest bond fund said he sees a more than one in three chance that the euro zone will break apart and trigger a financial crisis akin to the one that devastated the global economy in 2008. “It would be the equivalent of a sudden stop” in which financial markets seized up, Mohamed El-Erian, chief executive officer of Pacific Investment Management Co. in Newport Beach, California, said. “It would be really, really messy.”

Existing Homes

In the US, the number of existing homes sold was revised lower by an average 14 per cent since 2007, the National Association of Realtors reported today, magnifying the depth of the slump that contributed to the last recession.
Oracle tumbled 13 per cent to $25.31. Business-software companies are taking longer to close deals as companies gird for slow economic growth in the US and the possibility of a recession in Europe next year, said Rick Sherlund, an analyst at Nomura Holdings Inc.
Walgreen slumped 5.3 per cent to $31.73. A dispute between the company and Express Scripts Inc., an employee-benefits manager, led to a loss of customers, hurting pharmacy demand.CVS Caremark Corp. and Rite Aid Corp. are trying to grab customers amid whether Walgreen and Express Scripts will resolve their contract, which expires Dec. 31.

RIM Surges

RIM surged 6.7 per cent to $13.36. It “turned down takeover overtures” from Amazon because it wanted to fix its shortcomings independently, Reuters reported yesterday. That was followed by a Wall Street Journal article that said Microsoft and Nokia “flirted with the idea of making a joint bid” in recent months. Both cited unidentified people familiar with the matter.
Anyone expecting the so-called January effect to turn shares of smaller US companies into market leaders may end up waiting in vain, according to Steven G DeSanctis, a strategist at Bank of America Merrill Lynch. “We do not think we will see a January effect occur in the remainder of this month or next month,” DeSanctis wrote yesterday in a report. Smaller companies have only kept pace with larger ones since the end of October. In past years, they rallied during the period in anticipation of further gains in January. Price swings linked to concern that the US and European economies are faltering explain why the effect is unlikely to surface, according to DeSanctis, a small-cap stock specialist based in New York.
In January, small caps beat large caps 73 per cent of the time since 1926, according to his analysis of figures from the University of Chicago’s Center for Research in Security Prices. The per centage is the highest for any month of the year. Small caps also had their best monthly performance in January, with an average gain of 4 per cent, DeSanctis wrote.