U.S. Stocks Drop on Disappointing Consumer Confidence, Earnings

By Lynn Thomasson

July 28 (Bloomberg) -- U.S. stocks fell and the Standard & Poor’s 500 Index retreated from an eight-month high as consumer confidence trailed projections and companies from Office Depot Inc. to Coach Inc. posted worse-than-estimated results.

American Express Co. and Exxon Mobil Corp. helped lead the Dow Jones Industrial Average lower as the Conference Board report reinforced concern that higher unemployment will undermine consumer sentiment. Office Depot, the second-largest business-supply retailer, slid 18 percent and Coach, the biggest U.S. maker of luxury leather handbags, lost 1.3 percent. Losses were limited as technology and health-care stocks gained.

The S&P 500 slipped 0.3 percent to 979.63 at 4:04 p.m. in New York after a two-week rally left the index trading at 16.23 times its companies’ earnings from the past year, the most expensive valuation since September. The Dow lost 11.79 points, or 0.1 percent, to 9,096.72. Europe’s Dow Jones Stoxx 600 Index slumped 0.9 percent.

“My concern is that the valuations aren’t justified,” said Charles Knott, chief investment officer at Knott Capital Management in Exton, Pennsylvania, who oversees about $500 million. “The market has come a long way in the last month and while earnings have generally exceeded expectations, the expectations were probably set too low.”

While the S&P 500 is up 11 percent since July 10 after companies from Goldman Sachs Group Inc. to Mattel Inc. beat estimates, Bloomberg data shows per-share profits have dropped 27 percent on average for companies that reported since June 17. Companies have slashed costs by firing workers and reducing business expansion, leading them to beat analysts’ profit projections on a per-share basis by 9.9 percent while topping revenue expectations by only 0.2 percent.

Confidence Slumps

The Conference Board’s confidence index dropped to 46.6, a second consecutive decline, following a reading of 49.3 in June, a report from the New York-based group showed today. The figure reached a record low of 25.3 in February.

The government sold a record $42 billion of two-year notes, drawing a yield of 1.08 percent that was greater than the forecasted 1.058 percent compiled from a Bloomberg News survey of eight of the Federal Reserve’s primary dealers that bid on the securities. Yields on the benchmark 10-year note fell 0.03 percentage point to 3.69 percent, according to BGCantor Market Data.

Office Depot plunged 18 percent, the most since January, to $4.38 for the steepest loss in the S&P 500. The company reported a second-quarter loss excluding some items of 22 cents a share, while the average estimate of analysts was a loss of 12 cents.

Coach retreated 1.3 percent to $28.05. The retailer said fiscal fourth-quarter sales declined 0.5 percent to $777.7 million, missing analysts’ estimates, as mounting job losses and declining home values discourage shoppers from purchasing non- necessities.