Stocks drop as earnings slide
NEW YORK, USA - A parade of grim news, from weak corporate earnings to a pullback at US factories to spreading fault lines in Europe’s debt crisis, sent investors fleeing stocks for a third straight day yesterday.
As if that weren’t bad enough, Apple delivered a rare earnings disappointment after the closing bell, boding poorly for Wednesday’s trading.
The Dow Jones industrial average fell 104.14 points, or 0.8 per cent, to 12,617.32. It was the third triple-digit point loss in a row for the blue chip index. The last time that happened was September, when fears were rife that the US was on the brink of another recession
Lower earnings forecasts from corporate bellwethers like United Parcel Service, combined with a weak report on manufacturing, fed fears of more disappointing results from Corporate America in the coming days.
“Our guess is we haven’t seen the worst,” said Carl Yingst, chief market analyst at Joseph Gunner, an investment bank.
Soon after he spoke came a bit of confirmation from a stock market star. After the close of trading, Apple reported the smallest increases in revenue and income in years, badly missing analysts’ expectations. The stock fell US$29.76, or five per cent, to US$571.19 in extended trading.
“It’s a huge swing and a miss for a company that usually knocks the cover off the ball,” said Jack Ablin, chief investment officer of Harris Private Bank. “The ill winds of global trade are enveloping everyone, even the high and mighty.”
It was a fitting end to a bad day as investors around the world dumped stocks and fled to the relative safety of U.S. government debt. The yield on the benchmark 10-year Treasury note fell to another record low and the dollar hit a two-year high against the euro.
Stocks fell from the start of trading following news that UPS had cut its earnings forecast 4 percent for all of 2012 as global trade slows. UPS’s stock fell US$3.61, or five per cent, to US$74.34.
Also weighing on stocks, Spain’s borrowing costs spiked as investors worried that country could become the latest in Europe to ask for a financial lifeline. Spain’s banks have already received help from international lenders.
The broader Standard & Poor’s 500 fell 12.21 points to 1,338.31. The Nasdaq composite was off 27.16 points to 2,862.99.
Early in the day, DuPont reported that its net income fell three per cent for the second quarter on slower business in Europe and Asia. The huge chemical maker also reported revenue that fell short of Wall Street’s expectations. DuPont’s stock lost 97 cents, or two per cent, to US$47.74.
Adding to the jitters was a report from Federal Reserve Bank of Richmond indicated that manufacturing in the central-Atlantic region is contracting. That followed reports of pullbacks in New York and Philadelphia.
In Europe, the yield on the 10-year Spanish government bond rose 0.10 percentage point to 7.53 per cent, a dangerously high level. Investors also sold Italian government bonds, sending the yield on that country’s 10-year bond up 0.32 percentage points to 6.54 per cent.