Stocks decline as Russian sanctions overshadow phone rally

NEW YORK - U.S. stocks fell Tuesday as President Barack Obama announced new sanctions against Russia and warned its actions in Ukraine are "setting back decades of progress," snuffing out earlier gains led by telephone stocks.

United Parcel Service Inc. slid 3.7 percent after cutting its full-year forecast. Windstream Holdings Inc. surged 12 percent on plans to spin off assets into a publicly traded real estate investment trust. Masco Corp. and Merck & Co. gained after reporting earnings that topped analysts' projections. Twitter Inc. soared 33 percent after the market's close as second-quarter revenue beat estimates.

The Standard & Poor's 500 Index slipped 0.5 percent to 1,969.95 at 4 p.m. in New York. The Dow Jones Industrial Average lost 70.48 points, or 0.4 percent, to 16,912.11 after earlier in the day gaining as much as 74 points. About 6 billion shares changed hands on U.S. exchanges, up 5.3 percent from the three- month average.

"Geopolitical risk remains a risk," Dan Veru, chief investment officer at Fort Lee, New Jersey-based Palisade Capital Management, said by phone. The firm oversees $5 billion. "What ultimately makes stocks go higher is earning and earnings are supporting higher valuations in the market."

The U.S. sanctioned three Russian banks and a state-owned shipbuilder that serves Russia's navy and oil and gas industry, joining with the European Union in escalating the penalties for Russia over its actions in Ukraine.

The EU curbed Russia's access to bank financing and advanced technology in its widest-ranging sanctions yet. EU governments agreed to bar Russian state-owned banks from selling shares or bonds in Europe and restricted the export of equipment to modernize the oil industry, a key prop for Russia's economy, an EU official said.

"Russia is once again isolating itself from the international community, setting back decades of progress," Obama said at the White House. "We can't, in the end, make President Putin see more clearly; ultimately that's something President Putin has to do on his own."

American Express Co. and Newmont Mining Corp. are among S&P 500 companies reporting earnings today. About 78 percent of those that have posted results this season have beaten analysts' estimates for profit, while 65 percent exceeded sales projections, according to data compiled by Bloomberg.

Profits probably rose 8.2 percent in the second quarter, while sales gained 3.5 percent, according to analyst estimates compiled by Bloomberg.

Economic reports today showed improving consumer sentiment while the housing market remains in a slowdown. The Conference Board's consumer confidence index rose to 90.9, the highest since October 2007. Residential real-estate prices advanced 9.3 percent in the 12 months ended May, the slowest pace in more than a year, as a lull in the U.S. housing market limits appreciation, according to the S&P/Case-Shiller index of property values in 20 cities.

The Federal Reserve will reduce its monthly purchases for the sixth time to $25 billion from $35 billion after a two-day policy meeting starting today, according to economists surveyed by Bloomberg News. Investors will also get a reading on second- quarter economic growth tomorrow.

Three rounds of monetary stimulus from the central bank have helped propel the five-year bull market, with the S&P 500 almost tripling from 2009.

"Unless something happens dramatically in the Middle East and that's not our expectation, our sense is that you really need to see a significant change in central bank policy before you start to see markets become a little more nervous and you have a more sustainable selloff," Arvin Soh, a New York-based portfolio manager with GAM, said by phone. His firm manages more than $120 billion globally. "Certainly we're expecting more volatility as the year progresses."

The Chicago Board Options Exchange Volatility Index, known as the VIX, rose 5.7 percent to 13.28. The gauge of options costs has jumped 29 percent from a seven-year low this month.

Nine out of the S&P 500's 10 main industries declined, led by industrial and utility companies. Phone companies jumped 2.2 percent. Verizon Communications Inc. rose 0.8 percent to $51.97 and AT&T Inc. added 2.6 percent to $36.59, among the biggest gains in the Dow.

Windstream jumped 12 percent to $11.83. The company will spin off its fiber and copper networks, as well as other real estate, as a REIT, which will lease use of the assets to Windstream with an initial estimated rent payment of $650 million per year. If state regulators and the Securities and Exchange Commission approve the transaction, it could open the door for the other phone carriers to consider similar deals.

Frontier Communications Corp. climbed 14 percent to $6.79 and CenturyLink Inc. rallied 5.8 percent to $39.90.

Cable companies, which have their own network assets, also rose on the news. Comcast Corp. increased 0.5 percent to $54.99, and Time Warner Cable Inc. added 0.6 percent to $149.86.

Merck added 1.1 percent to $58.58. The second-biggest U.S. drugmaker reported that net income more than doubled to $2 billion as the company cut costs. Excluding one-time items, second-quarter earnings were 85 cents a share, beating by 4 cents the average analyst projection.

Masco climbed 7.1 percent to $21.71. The installer of home insulation reported second-quarter profit of 32 cents a share, above the 28-cent projection by analysts.

Twitter rallied 33 percent to $51.17 as of 4:36 p.m. in New York. After the market close, the microblogging company said active membership in the second quarter reached 271 million, with year-over-year growth at 24 percent, compared with 25 percent in the prior period. Sales more than doubled to $312.2 million, exceeding the $282.8 million analyst estimate compiled by Bloomberg.

UPS lost 3.7 percent to $98.86 in regular trading. The world's biggest package shipping company cut its 2014 outlook after reporting earnings of $1.21 a share for the quarter, below forecasts for $1.25 a share.

Herbalife Ltd. tumbled 14 percent to $58.35. Excluding some items, the nutrition company posted earnings of $1.55 a share, missing analysts' estimates by 2 cents. The company also said sales this year will grow by 8.5 percent to 10.5 percent, slower than the range of 10 percent to 12 percent it predicted in April.

Corning Inc. slumped 9.3 percent to $20. Profit missed analysts' estimates as demand for Gorilla Glass, the hard cover glass used for smartphones and tablets, was weaker than the company expected.