U.S. Stocks Fall as Jobless Claims Data Cast Doubts on Recovery

By Nikolaj Gammeltoft

U.S. stocks declined and the Standard & Poor’s 500 Index fell a third day after unemployment claims unexpectedly rose to the highest in five months, adding to evidence the recovery is weakening.

Cisco Systems Inc., the world’s largest maker of networking equipment, tumbled 9.4 percent after forecasting sales that missed analysts’ estimates. Juniper Networks Inc. dropped 6.6 percent. Caterpillar, the world’s largest maker of construction equipment, retreated 1.6 percent as rising jobless claims signaled firings stepped up in a slowing economy. Estee Lauder Cos. slumped 2.7 after fourth-quarter profit missed estimates.

The S&P 500 fell 0.4 percent to 1,085.28 at 11:54 a.m. New York time and reached the lowest intraday level since July 22. The Dow Jones Industrial Average slipped 36.10 points, or 0.4 percent, to 10,342.73.

“There’s renewed fear about the economic recovery rolling into a double-dip” recession, said Henry Smith, chief investment officer at Haverford Trust Co., which manages $6.2 billion in Radnor, Pennsylvania. “We had Cisco’s comments about the second half and we had jobless claims rising when we expected a fall. All of this is weighing on investors’ concern about whether the recovery can transition into a sustainable expansion rather than a double-dip recession.”

The S&P 500 retreated 11 percent since April 23 through yesterday amid concern the recovery from the worst economic contraction since the Great Depression is stalling.

Fed’s Plan

Stocks slid from Tokyo to New York yesterday on concern the Federal Reserve’s stimulus plan announced Aug. 10 shows the economic recovery is in jeopardy. The S&P 500 fell 2.8 percent, the most in three weeks, as the Commerce Department said the U.S. trade deficit unexpectedly widened in June, while government data suggested a slowdown in China is deepening.

Stock futures extended declines today as initial jobless claims rose by 2,000 to 484,000 last week, the highest level since mid February, according to the Labor Department.

Technology stocks fell 1.7 percent as a group, the most among 10 industries in the S&P 500, after Cisco said revenue in the current quarter will be as low as $10.64 billion. Analysts surveyed by Bloomberg estimated $10.95 billion on average.

Cisco Chief Executive Officer John Chambers said on a conference call that the company was seeing “unusual uncertainty” and getting “mixed signals” about the health of the economy. The chances of a double dip are “relatively low,” he added. The shares were cut to “perform” from “outperform” at Oppenheimer & Co.

Cisco, Juniper

Cisco dropped 9.4 percent, the most since May 6, to $21.49. Juniper Networks, the second-largest maker of computer- networking equipment, fell 6.6 percent to $25.85. JDS Uniphase Corp. fell 7.5 percent to $10.26. Technology hardware companies in the S&P 500 fell 2.6 percent as a group, the most among 24 industries.

Industrial stocks in the S&P 500 fell 0.9 percent, the second-most among 10 groups, after initial jobless claims data indicated that companies may be losing confidence in the recovery and are hesitant to hire, raising the risk of further erosion in consumer spending, the biggest part of the economy. Fed policy makers said this week that growth “is likely to be more modest” than they previously projected, prompting central bankers to take additional steps to spur a rebound.

Caterpillar lost 1.6 percent to $67.60, Boeing Co. dropped 1.1 percent to $64.88 and General Electric Co. slipped 0.6 percent to $15.60.

Complex Situation

“The situation is complex for the Fed because obviously the economy is not doing well, but we are not in a recession,” said Jacques Porta, a Paris-based fund manager at Ofi Patrimoine who helps oversee about $425 million in stocks. “I would have thought the market had more than priced this situation. It should have come as no surprise to anyone.”

Estee Lauder, the maker of Mac cosmetics and Clinique skin care, fell 2.8 percent to $58.64 after reporting fourth-quarter profit of 29 cents a share on an adjusted basis. Analysts surveyed by Bloomberg estimated profit of 30 cents on average.

Kohl’s Corp., the fourth-largest U.S. department-store chain, fell 3.7 percent to $46.01 after lowering the top end of its profit forecast range. Earnings for fiscal 2011 will be as much as $3.70 a share, down from an earlier goal of $3.75, Kohl’s said.

EBay Inc. rose 2.1 percent to $21.70 after Citigroup Inc. advised buying shares of the Internet auctioneer. The owner of e-commerce sites and the PayPal online payment service was upgraded to “buy” from “hold” at Citigroup, which said losses in 2010 and an appealing valuation set up a good “entry point” for investors. EBay shares, which have dropped 9.7 percent this year, may climb to $28, the bank said.

Semiconductor shares declined after BMO Capital Markets reduced the industry’s rating to “underperform” from “market perform,” citing rising inventory and weakening demand.

Broadcom Corp. sank 3.9 percent to $32.47. Altera Corp. slid 5.3 percent to $25.44 and Xilinx Inc. lost 5.9 percent to $25.26.