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U.S. Stocks Fall on Retail Earnings as Small-Cap Shares Retreat

May 20 (Bloomberg) -- U.S. stocks fell as retailers from Staples Inc. to Urban Outfitters Inc. slumped on worse-than- estimated earnings and small-cap companies retreated after a two-day rebound.

Staples tumbled 12 percent after forecasting second-quarter profit that was less than analysts estimated. Urban Outfitters fell 7 percent as earnings missed forecasts. Home Depot Inc. jumped 2.8 percent after saying sales are rebounding as warming weather spurs demand for gardening supplies. Amazon.com Inc. and TripAdvisor Inc. rose more than 1.5 percent as the Dow Jones Internet Composite Index erased an early loss.

The Standard & Poor’s 500 Index slipped 0.2 percent to 1,881.50 at 11:28 a.m. in New York, trimming an earlier drop of 0.4 percent. The Dow Jones Industrial Average fell 34.87 points, or 0.2 percent, to 16,476.99. The Russell 2000 Index of small- cap stocks slid 1.2 percent. Trading in S&P 500 companies was 21 percent below the 30-day average for this time of day.

“What we’re seeing is a re-assessment of the growth prospects of earnings,” Brad McMillan, the chief investment officer for Commonwealth Financial Network, said by phone. His firm oversees $83 billion. “It’s not a question of ‘are we going to grow?’ Because we are. It’s ‘are we going to grow as fast as we thought we would?’”

The S&P 500 climbed 0.4 percent yesterday in one of the slowest trading days of the year as Internet and small companies extended a rebound from last week’s losses. The benchmark index reached an all-time high of 1,897.45 on May 13 before a selloff in small-cap stocks spread to the broader market.

Small Companies

The Russell 2000 Index fell 3.3 percent over three days last week before rebounding 0.6 percent on May 16 and a further 1 percent yesterday. The gauge is 8.9 percent below its record from March.

“Between now and June, waning earnings data and no significant U.S. economic data suggest equities have no appreciable catalyst for why they should march significantly higher,” Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which oversees $65 billion in assets, said in a phone interview. “We’re going to be in this trading range for several months.”

Salesforce.com Inc. and Intuit Inc. are among S&P 500 companies reporting results today. About 75 percent of those that have posted results this season have beaten analysts’ estimates for profit, while 53 percent have exceeded sales projections, data compiled by Bloomberg show.

Federal Reserve Chair Janet Yellen said last week the U.S. economy has further to go to achieve full health and predicted small businesses will play a vital role in the recovery.

Fed Minutes

The Fed will release minutes from its latest meeting tomorrow. Policy makers said last month the economy is showing signs of picking up and the job market is improving. The central bank pared its monthly asset buying and said further reductions in “measured steps” are likely.

Three rounds of bond purchases by the Fed have helped send the S&P 500 up as much as 180 percent from a 12-year low in 2009. The gauge trades at 16 times estimated earnings, compared with a five-year average of 14.3 times, according to data compiled by Bloomberg.

The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility known as the VIX, rose 0.6 percent to 12.50. The measure has lost 9 percent this year.

Eight of the 10 main S&P 500 groups fell today, with phone and industrial shares tumbling at least 0.5 percent for the biggest declines.

Retail Earnings

Staples slid 12 percent to $11.83 after posting first- quarter adjusted earnings of 18 cents a share. Analysts on average had projected 21 cents. The biggest U.S. office-supply chain also said sales will decline in the second quarter from a year earlier.

Urban Outfitters declined 7 percent to $33.64 after reporting first-quarter earnings of 26 cents a share, missing the 27-cent average projection of analysts in a Bloomberg survey. The teen-clothing retailer also said comparable sales were little changed for the quarter, versus a 0.3 percent gain that analysts predicted.

Dick’s Sporting Goods Inc. tumbled 16 percent, the most in more than five years, to $44.55 after weak sales of golfing and hunting gear crimped its profit forecast. TJX Cos. fell 5.8 percent to $55 after cutting the top end of its full-year projection.

Home Depot

Home Depot rose 2.8 percent to $78.65. While the company posted first-quarter profit that trailed some analysts’ estimates, Chief Financial Officer Carol Tome said it expects revenue lost due to the grim winter will be recouped this quarter.

The Dow Jones Internet Composite Index was little changed after erasing an earlier decline. The gauge rallied 2 percent over the previous two days, and has trimmed its loss for the year to 8.1 percent.

Amazon increased 1.7 percent to $301.80. TripAdvisor advanced 1.5 percent to $87.69.

Yahoo! Inc. gained 1.4 percent to $34.35. Its Japanese subsidiary scrapped a deal to acquire eAccess Ltd. from Softbank Corp. to focus on developing services as part of a strategy to expand into mobile. Yahoo owns a 36 percent stake in Yahoo Japan Corp.

Carnival Corp. climbed 1.4 percent to $39.40 after saying P&O Cruises Australia, one of its 10 brands, will add two ships to its fleet next year. That will bring the total to five, making it Australia’s biggest year-round fleet, the world’s largest cruise-line operator said in a statement. Morgan Stanley raised its stock rating.

Ophthotech Corp. jumped 21 percent to $38.17. The drug developer granted Novartis AG the exclusive rights to commercialize its Fovista treatment in markets outside the U.S. Ophthotech said it may get more than $1 billion from the deal, including $200 million upfront and further payments if it reaches some targets.

To contact the reporters on this story: Callie Bost in New York at cbost2@bloomberg.net; Namitha Jagadeesh in London at njagadeesh@bloomberg.net To contact the editors responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net; Lynn Thomasson at lthomasson@bloomberg.net Jeff Sutherland, Srinivasan Sivabalan

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