U.S. Stocks Fall on Earnings; Commodities, Euro Slump
U.S. stocks fell for a fourth day as pessimism about the earnings season grew while commodity producers slid amid lower oil and metal prices. The euro reached a two-year low versus the dollar, while European shares rallied.
The Standard & Poor’s 500 Index dropped 0.8 percent to close at 1,341.47 at 4 p.m. in New York, extending its longest slump since May. Ten-year Treasury yields slipped one basis point to 1.50 percent. The euro weakened as much as 0.6 percent to $1.2235 and touched a record low of 1.199 Australian dollars. Oil sank 2.4 percent to $83.91 a barrel as a strike in Norway was averted and China reduced purchases. Natural gas tumbled 5 percent; nickel and silver lost more than 2 percent.
Reduced sales projections at Advanced Micro Devices Inc., Applied Materials Inc. and Cummins Inc. spurred concern about the groups forecast to post the strongest profit growth among 10 industries in the S&P 500. (SPXL1) Technology and industrial company earnings grew more than 7 percent in the second quarter while profits for the entire S&P 500 are projected to have fallen 1.8 percent in the first decrease since 2009, according to analyst estimates compiled by Bloomberg.
“The bigger concern is with the next few quarters,” Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said in a phone interview. “Earnings disappointments suggest that we’re going to have not only weakness this quarter, but it’s likely to carry on.”
Technology shares in the S&P 500 fell 1.2 percent as a group and were the biggest drag on the index among the 10 main industries, while industrial companies slid 1.6 percent for the largest decline.
AMD (AMD), the second-biggest maker of processors for personal computers, tumbled 11 percent after reporting an unexpected drop in second-quarter sales, citing weakness in China and Europe. Micron Technology Inc. and SanDisk Corp. fell at least 4.2 percent. Applied Materials also cited weakness in Europe and China in cutting its 2012 sales and profit forecasts, sending shares of the chipmaking-equipment provider down 2.7 percent.
Cummins, a maker of truck engines, tumbled 8.8 percent after saying order trends have weakened and the company expects 2012 revenue “to be in line” with 2011 after projecting a 10 percent increase in February. Second-quarter preliminary revenue was about $4.45 billion, the company said, compared with the average analyst estimate for $5.08 billion.
Alcoa Inc. (AA) tumbled 4.1 percent after reporting a quarterly loss of $2 million and a drop in sales to $5.96 billion from $6.59 billion. Profit excluding certain items was 6 cents a share, compared with the 5-cent average of estimates compiled by Bloomberg. JPMorgan Chase & Co. reduced earnings estimates for Alcoa and cut its share price target to $12 from $14.50 due to lower aluminum prices.
“I don’t expect the rest of the earnings season to surprise to the upside,” John Augustine, who helps oversee $25 billion as chief market strategist at Cincinnati-based Fifth Third Asset Management, said in a phone interview. “Earnings will be the driver of the market coming up.”
The euro weakened against all 16 major peers as traders used the currency to fund purchases of higher-yielding assets five days after the European Central Bank reduced its key interest rate to a record 0.75 percent. The shared currency depreciated even as Europe planned to jump-start as much as 100 billion euros ($123 billion) in loans to shore up Spain’s banks, Luxembourg Prime Minister Jean-Claude Juncker said after chairing a meeting of euro-area finance ministers.
“The euro is now the main funding currency, and everyone wants to be short euro,” said Sebastian Galy, a senior foreign- exchange strategist at Societe Generale SA in New York. “The dollar is no longer the main funding currency.” A short position is a bet currency will decline in value.
The currencies of Sweden, Japan and South Africa led gains against the euro, rising more than 0.5 percent. The euro extended losses as Italian Prime Minister Mario Monti said he won’t serve in another government when his term ends next year. Monti said he is confident Italy would not need a full rescue from European allies, while not ruling out a request for the permanent bailout funds to buy the nation’s bonds.
Five shares rose for each that declined in the Stoxx Europe 600 Index (SXXP), sending the gauge up 0.8 percent. ASML Holding NV (ASML) jumped 8.6 percent as Intel Corp., the world’s largest semiconductor maker, agreed to invest as much as $4.1 billion in Dutch chip-equipment maker. Ipsen SA sank 11 percent after U.S. regulators put clinical trials of a hemophilia drug it’s developing on hold because of potential safety concerns.
European stocks also advanced as U.K. manufacturing rose 1.2 percent from April and industrial output grew 0.8 percent in Italy, defying the median economist estimates for declines.
Spanish equities and bonds also gained after finance chiefs agreed to make available 30 billion euros for struggling lenders by the end of this month. The goal is to eventually use the euro-area bailout fund to recapitalize banks directly instead of saddling the government with the debts.
“It’s positive progress showing that the European Union is moving towards a banking union,” Norman Chan, head of investment at Calibre Asset Management Ltd., a unit of National Australia Bank Ltd., said in an interview with Bloomberg Television. “It shows the EU is being pragmatic.”
The MSCI Emerging Markets Index slipped 0.1 percent, a fifth straight decline. Benchmark gauges in India and Thailand climbed more than 1 percent, while Brazil’s Bovespa sank 3.1 percent amid lower commodity prices. The Hang Seng China Enterprises Index of mainland shares slid 0.6 percent. China’s imports rose less than anticipated in June while growth in outbound shipments slowed, customs bureau data showed.
The extra yield investors demand to own Spanish 10-year debt over benchmark German bunds narrowed 25 basis points to 5.49 percent. The yield on 10-year Italian bonds fell 15 basis points to 5.95 percentage points. Germany’s 10-year yield was little changed at 1.32 percent.
The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments dropped 4.1 basis points. The Markit iTraxx Crossover Index of contracts tied to the debt of 50 mostly junk-rated European companies declined for a second day, falling 15.3 basis points.
Brent crude fell 2.3 percent to $97.97 a barrel after the Norwegian government ordered compulsory arbitration, preventing a lockout of platform workers that had been scheduled to start yesterday at midnight. Among the 24 commodities tracked by the S&P GSCI Index, only coffee and cotton advanced as the gauge tumbled 1.6 percent. Corn retreated from the highest price since September and soybeans fell from a four-year high amid speculation the surge in prices since the middle of June may curtail global food demand.