US stocks down on weak earnings, Spain fears
By Chuck Mikolajczak, Reuters October 24, 2012, 12:17 am TWN
NEW YORK--U.S. stocks slid more than 1 percent on Tuesday as poor earnings from major multinationals confirmed fears about the slowing global economy and Moody's downgraded credit ratings for regions in Spain.
A number of the disappointing results including Dupont and United Technologies came from companies with operations across the globe and in many industries. The weak earnings and dwindling revenues have led to cost-cutting that will add to lost jobs in order to protect profits.
"The writing has been on the wall for a while," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.
"It's a very tough environment, tough to generate new revenues, so it shouldn't be too big a surprise we are having people miss on that front."
DuPont, another component of the Dow Jones Industrial Average, reported a lower-than-expected quarterly profit and announced 1,500 job cuts to offset falling sales around the world. Its shares tumbled 7.4 percent to US$46.09 and pulled the S&P materials sector down 2.7 percent.
United Technologies Corp. reported a 3.3 percent decline in third-quarter earnings and cut its sales forecast for the year, citing weak demand from airlines and an uncertain economy, sending shares down 0.5 percent to US$77.46.
3M Co. lost 3.1 percent to US$99.65 after the diversified U.S. manufacturer cut its profit forecast for the full year as acquisition costs and a strengthening dollar hurt margins.
The three companies accounted for about 50 points of the decline on the Dow industrials.
Spanish borrowing costs rose after Moody's downgraded five of the country's regions, including economically important but deeply indebted Catalonia.
"We had gone through a period starting with (European Central Bank President Mario) Draghi's announcement from the ECB that he would stand behind the sovereign debt where Spain's situation had kind of faded from people's view and it's bubbling up again," Jankovskis said.
The Dow Jones Industrial Average dropped 184.78 points, or 1.38 percent, to 13,161.11. The Standard & Poor's 500 Index lost 19.58 points, or 1.37 percent, to 1,414.24. The Nasdaq Composite Index fell 34.14 points, or 1.13 percent, to 2,982.82.
The S&P 500 was below its 50-day moving average of about 1,434, a level which has acted as a strong support point in recent sessions and could signal further declines if convincingly broken.
United Parcel Service Inc reported a lower quarterly profit on Tuesday, citing slowing global trade, and said there was "some uncertainty" about the strength of the coming holiday season. Its shares, however, advanced 3 percent to US$73.72 in premarket.
Of the 127 S&P 500 companies that have reported earnings through Monday, 61 percent have topped analysts' expectations, shy of the 62 percent average since 1994 and below the 67 percent average over the past four quarters.
Even more disconcerting to investors are top-line expectations. Through Monday morning 61 percent of companies having missed revenue expectations.
Overall earnings for S&P 500 stock index companies are expected to fall 2.4 percent in the third quarter from a year ago.
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