Bloomberg News

U.S. Stocks Decline as Europe, Banks Offset Economy

October 12, 2012

U.S. stocks fell, giving the Standard & Poor’s 500 Index its biggest weekly drop in four months, as a slump in European and financial shares overshadowed an unexpected jump in consumer confidence.

JPMorgan Chase & Co. (JPM:US) and Bank of America Corp. (BAC:US) paced declines among financial companies, which had the biggest loss out of 10 S&P 500 groups. Wells Fargo & Co. (WFC:US) slid 2.6 percent after reporting a record third-quarter profit that was marred by narrower profit margins. Advanced Micro Devices Inc. (AMD:US) slid 14 percent after cutting its third-quarter revenue forecast.

The S&P 500 dropped 0.3 percent to 1,428.59 at 4 p.m. New York time, after increasing as much as 0.4 percent earlier. The Dow Jones Industrial Average added 2.46 points, or less than 0.1 percent, to 13,328.85. About 5.4 billion shares traded hands on U.S. exchanges today, 9.4 percent below the three-month average.

“You’re in the midst of earnings season, which has been kind of blah,” Malcolm Polley, who manages $1.1 billion as chief investment officer at Stewart Capital in Indiana, Pennsylvania, said in a telephone interview. “I’m interested in what companies are seeing more than the macro data points because I think companies have a better pulse on what’s really going on. Business is slow and most companies are not seeing an improvement in the near-future.”

The S&P 500 slid as European equities headed lower. The Stoxx Europe 600 Index declined for the fourth time in five days. U.S. stocks rose earlier as confidence among U.S. consumers unexpectedly jumped in October to the highest level since before the recession began five years ago. The Thomson Reuters/University of Michigan preliminary October consumer sentiment index increased to 83.1. The gauge was projected to fall to 78, according to economists surveyed by Bloomberg News.

Wholesale Prices

A separate report showed wholesale prices in the U.S. rose more than forecast in September, reflecting a jump in fuel costs that failed to trickle down to other goods.

The S&P 500 lost 2.2 percent this week, the biggest drop since June 1. The benchmark equity gauge is still up 14 percent this year as companies reported better-than-expected earnings and the Federal Reserve announced a third round of bond purchases.

The third-quarter earnings season is forecast to show S&P 500 profits and sales fell in unison for the first time in three years, according to analysts’ estimates compiled by Bloomberg. Per-share earnings in the S&P 500 are projected to have dropped 0.9 percent after they were little changed in the second quarter. Sales may have slipped 0.6 percent, the data show.

Earnings Season

Of the 35 S&P 500 companies that have reported since Oct. 10, 69 percent have reported earnings that have exceeded analysts’ estimates while 51 percent posted sales that topped projections, data compiled by Bloomberg show.

Earnings pessimism among U.S. chief executive officers is climbing to levels last seen when the S&P 500 was mired in bear markets. Over the last four weeks, the ratio of companies saying profits will trail estimates compared with those saying they will exceed them climbed to 4.3, according to 69 earnings previews compiled by Bloomberg. The rate matches peaks reached in February 2009 and October 2001, the data show.

Vice President Joe Biden and Republican Paul Ryan each said that their parties’ proposals would bring U.S. unemployment below 6 percent during a pre-election debate yesterday.

Voters Poll

A CNN poll of registered voters scored the showdown as essentially a tie, with 48 percent declaring Ryan the winner and 44 percent siding with Biden. The survey of 381 respondents has a margin of error plus or minus 5 percentage points. A CBS poll of 431 undecided voters showed Biden the winner over Ryan, 50 percent to 31 percent, with a margin of error of 5 percentage points.

Financial companies erased 1.4 percent as a group in the S&P 500. JPMorgan lost 1.1 percent to $41.62, while Bank of America slumped 2.4 percent to $9.12 for the biggest decline in the Dow. American Express Co. (AXP:US) also fell, losing 1 percent to $57.89, while First Horizon National Corp. (FHN:US), Tennessee’s largest bank by market share, slumped 4.3 percent to $9.52.

JPMorgan, the largest U.S. bank by assets, is still recovering from a wrong-way bet on credit derivatives that cost it about $6.25 billion through the first nine months of this year, not including what the bank said was a “modest” additional loss in the third quarter. Chief Executive Officer Jamie Dimon, 56, got help restoring investor confidence from historically low interest rates and government programs that fueled demand for home loans.

Wells Fargo

Wells Fargo slipped 2.6 percent to $34.25. While record-low rates spurred homeowners to refinance, boosting the mortgage unit (WFC:US), that also curtailed interest income on the bank’s loans and other investments. Revenue in the third quarter was $21.37 billion, falling short of the $21.41 billion projected by analysts on average.

“Financials it appears may have some more rough sledding before the quarter’s over,”Lawrence Creatura, who helps oversee $370 billion as a Rochester, New York-based fund manager at Federated Investors Inc., said by phone. “This early in the earnings season, the larger-capitalization bellwethers are announcing and setting the tone for both their sectors and the market as a whole.”

AMD plunged 14 percent, the biggest loss in the S&P 500 (SPX), to $2.74. The second-largest maker of processors for personal computers said third-quarter revenue will drop (AMD:US) approximately 10 percent from the prior period, more than the decline of about 1 percent it had previously projected. The new forecast indicates sales of about $1.27 billion. The average analyst prediction was for a revenue of $1.38 billion.

Wal-Mart Gains

Wal-Mart Stores Inc. (WMT:US) added 1.1 percent to $75.81, the highest level ever. Jefferies & Co. lifted the world’s largest retailer to a buy from hold. The Bentonville, Arkansas-based company said earlier this week it had a “very strong” back-to- school season.

J.B. Hunt Transport Services Inc. surged 6.5 percent to $58.37 as the trucker posted third-quarter sales of $1.3 billion, topping the average analyst estimate of $1.28 billion in a Bloomberg survey.

Ecolab Inc. (ECL:US) rallied 4 percent to $66.24. The largest maker of cleaning chemicals for hotels and restaurants agreed to buy Champion Technologies Inc. for about $2.2 billion in cash and stock as it seeks a greater share of the oilfield chemicals business.

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


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • JPM
    (JPMorgan Chase & Co)
    • $62.48 USD
    • 0.00
    • 0.0%
  • BAC
    (Bank of America Corp)
    • $17.98 USD
    • 0.05
    • 0.28%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus