Bloomberg News

U.S. Stocks Drop Before Alcoa Report as IMF Cuts Forecast

October 09, 2012

U.S. stocks dropped, sending the Standard & Poor’s 500 Index lower for a third day, after the International Monetary Fund cut estimates for global growth and investors awaited quarterly results from Alcoa Inc. (AA:US)

Nine out of 10 groups in the S&P 500 retreated as consumer discretionary and technology companies led declines. Intel (INTC:US) Corp. slipped 2.7 percent as Sanford C. Bernstein & Co. downgraded the shares. Alcoa rose 0.6 percent at 4:25 p.m. New York time as the largest U.S. aluminum producer posted third-quarter earnings and sales that exceeded estimates.

The S&P 500 declined 1 percent to 1,441.48 as of 4 p.m. in New York. The Dow Jones Industrial Average fell 110.12 points, or 0.8 percent, to 13,473.53. Volume for exchange-listed stocks in the U.S. was 5.8 billion shares, or about in line with the three-month average.

“Everybody’s in a wait-and-see mode,” Randy Bateman, chief investment officer of Huntington Asset Management in Columbus, Ohio, said in a telephone interview. His firm oversees $14.7 billion. “We’re starting the earnings season and we’ll get a clear cut idea as to what’s going to unfold.”

Third-quarter profits and sales for the S&P 500 (SPX) probably fell in unison for the first time in three years, according to analysts’ estimates compiled by Bloomberg. Per-share earnings may have dropped 1.7 percent on average after they were little changed in the second quarter. Sales may have slipped 0.6 percent, the data show.

Growth Forecast

The world economy will expand 3.3 percent this year, the slowest since 2009, and 3.6 percent next year, the IMF said today, compared with July predictions of 3.5 percent in 2012 and 3.9 percent in 2013. The Washington-based lender now sees “alarmingly high” risks of a steeper slowdown, with a one-in- six chance of growth slipping below 2 percent.

Finance ministers from all the 27 countries in the European Union convened in Luxembourg today in the lead up to a summit of the region’s leaders in Brussels on Oct. 18-19. Ministers from the 17-nation euro area yesterday declared the 500 billion-euro ($649 billion) European Stability Mechanism operational. They also said Spain, the permanent rescue fund’s biggest potential near-term customer, isn’t on the verge of tapping it.

Today marks the five-year anniversary of the S&P 500’s all- time high of 1,565.15, reached Oct. 9, 2007. The index is 8.6 percent below that level.

The benchmark gauge for American equities has more than doubled since the 676.53 low in 2009, led by consumer discretionary shares and financial firms, which advanced more than 150 percent.

Bond-Buying

Gains during the past 3 1/2 years have come as earnings exceeded analyst estimates and the Federal Reserve took unprecedented measures to stimulate bank lending and economic growth. The central bank started a third round of bond-buying last month and has kept its benchmark interest rate at a record- low range of zero to 0.25 percent since December 2008. It has committed to keeping rates low through mid-2015 until the labor market improves “substantially.”

“The general economic slowdown, as highlighted by the IMF, continues to weigh on sentiment,” Richard Hunter, head of equities at Hargreaves Lansdown Plc in London, wrote in an e- mail. “The third-quarter U.S. reporting season kicks off later. Any upward surprises during the third-quarter season could be very positive for a market which is looking lackluster and in need of a catalyst.”

Biggest Declines

Consumer discretionary and technology companies slumped at least 1.3 percent as groups. Apple Inc. (AAPL:US), the world’s most valuable company, lost 0.4 percent to $635.85 after earlier falling as much as 2.3 percent. Shares of the iPhone maker have fallen for four days, the longest losing streak since July. Apple is down 9.4 percent since reaching an all-time record of $702.10 on Sept. 19. The company is likely to face challenges beyond 2013 as smartphone penetration growth in developed market slows, Nomura Holdings Inc. analyst Stuart Jeffrey wrote in a note.

“Apple took a turn down harder and that put further pressure on the broader indices,” said Larry Peruzzi, senior equity trader at Cabrera Capital Markets LLC in Boston, in an e- mail. “Apple is trading at correction levels. This is basically a technical trading trigger.”

Intel Downgrade

Intel, the world’s largest semiconductor maker, dropped 2.7 percent to $21.90. The stock was cut to underperform, the equivalent of sell, from market perform at Bernstein, which said the downgrade was based on long-term trends rather than expectations for the coming quarter.

Edwards Lifesciences Corp. (EW:US) erased 21 percent for the biggest drop in the S&P 500 to $84.60. The maker of a less- invasive heart valve generated an estimated $448 million in sales during the quarter, less than the $465 million to $485 million estimate in July, the company said yesterday.

Netflix Inc. (NFLX:US) lost 11 percent to $65.53 after Bank of America Corp. lowered its rating on the video-subscription service to underperform from buy, citing increasing competition. The shares rose yesterday to the highest since July after Morgan Stanley upgraded the stock, saying competition from Amazon.com Inc.’s Prime Instant service is “overblown.”

Owens Corning Inc. (OC:US), which produces materials for residential and commercial buildings, slumped 8.3 percent to $31.12. The company said earnings before interest and taxes in 2012 will be no more than $310 million after predicting at least $360 million in August.

Alcoa’s Results

Alcoa rose 0.6 percent to $9.18 after the close of regular trading. Excluding legal and environmental remediation costs, it had per-share profit of 3 cents. The average of 18 estimates compiled by Bloomberg was for break-even earnings per share. Sales fell to $5.83 billion from $6.42 billion, beating the $5.56 billion average of 10 estimates.

Spectrum Brands Holdings Inc. (SPB:US) surged 12 percent to $46.04. The consumer-products company agreed to buy Stanley Black & Decker Inc. (SWK:US)’s home unit for $1.4 billion to expand into the home-improvement market and residential-hardware market.

A firm that reported equity trades away from prevailing market prices earlier today is studying them to see if they should be voided, according to the Financial Industry Regulatory Association.

The transactions were sent to data feeds over the Finra/Nasdaq Trade Reporting Facility, a conduit for equity prices from off-exchange venues such as dark pools. The firm, which Finra didn’t identify, is “reviewing the trades to determine whether corrections or cancellations” are warranted, according to a statement from Finra spokeswoman Nancy Condon.

140 Stocks

While most of the shares that were bought and sold in America changed hands on three main markets until the late 1990s, trading now is fragmented across more than 50 public and private venues as well as among brokers who match orders through a process known as internalization. About 140 stocks quoted on the Finra facility swung over a one-hour period starting around 10 a.m. in New York, data compiled by Bloomberg show.

“These wild, computer-driven market swings just add to the view that the market is somehow rigged,” Edward Bozaan, a managing partner at New York-based Cleargate Capital LLC, said in an interview. “I do not believe markets are rigged, but it’s understandable how these mishaps can reduce confidence in the markets. The world does not need another flash crash.”

Prices rose and fell abruptly in companies such as Nokia Oyj and MEMC Electronic Materials Inc., as isolated trades carried out away from equity exchanges spurred concern about computer errors. Some of the trades have been canceled.

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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Companies Mentioned

  • AA
    (Alcoa Inc)
    • $16.55 USD
    • 0.31
    • 1.87%
  • INTC
    (Intel Corp)
    • $33.18 USD
    • 0.49
    • 1.48%
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