Bloomberg News

U.S. Stocks Drop on Google Earnings Miss; Spanish Bonds Advance

October 18, 2012

Spanish Bonds Rise as Stocks Fluctuate Before Summit

Spain sold a combined 4.61 billion euros ($6.1 billion) of securities due in 2015, 2016 and 2022, the Bank of Spain said, compared with a maximum target of 4.5 billion euros. Photographer: Angel Navarrete/Bloomberg

U.S. stocks fell for the first time in four days after Google Inc. (GOOG:US) reported lower-than-estimated earnings. The yen weakened, while Spain’s bonds rose as the nation raised more than planned at a debt sale.

The Standard & Poor’s 500 Index (SPX) lost 0.2 percent to 1,457.34 at 4 p.m. in New York, as Google Inc. sank 8 percent. Spanish 10-year yields fell 12 basis points to 5.34 percent. The yen dropped against most of its major counterparts. Gold futures retreated, while soybeans increased the most in five weeks. Ten- year Treasury yields rose to 1.84 percent.

Google reported profit (GOOG:US) excluding some items of $9.03 a share, according to a filing that was inadvertently filed during regular trading, trailing the average analyst estimate of $10.65 a share. U.S. jobless claims rose more than forecast last week. Spain sold a combined 4.61 billion euros ($6 billion) of securities due in 2015, 2016 and 2022, the Bank of Spain said, compared with a maximum target of 4.5 billion euros.

“Google failed to meet expectations,” Giri Cherukuri, a portfolio manager for Oakbrook Investments LLC, which manages $3 billion, said in a telephone interview. “Google is a big company, and on top of the fact that they missed estimates, they talked about advertising in the online world not doing as well as previously thought.”

Google Earnings

Trading in Google’s stock was halted (GOOG:US) at about 12:50 p.m. New York time, and resumed at 3:20 p.m. after the company released a finalized version of its earnings document. The results showed its tools are becoming less valuable to advertisers while costs associated with expansion into new businesses are chipping away at profitability.

Technology shares slid 1.5 percent, the most among 10 groups in the S&P 500. Apple Inc. (AAPL:US) slid 1.9 percent while International Business Machines Corp. (IBM:US) dropped 2.8 percent. AOL Inc. (AOL:US) dropped 1.9 percent, online-coupon provider Groupon Inc. (GRPN:US) slipped 3.4 percent and Facebook Inc. (FB:US), the world’s most popular social-networking service, lost 4.6 percent.

Microsoft Corp. (MSFT:US) fell 2.4 percent at 5:24 p.m. as it released results after the close of regular trading. The largest software maker reported fiscal first-quarter profit (MSFT:US) and sales that fell short of analysts’ estimates as declining personal computer sales crimped demand for Windows, its core operating system.

The Nasdaq Composite Index lost 1 percent to 3,072.87, while the Dow Jones Industrial Average fell 0.1 percent to 13,548.94. Philip Morris International Inc. (PM:US), the world’s largest publicly traded tobacco company, dropped 4.2 percent as earnings trailed analysts’ estimates. Morgan Stanley (MS:US) slipped 3.8 percent after reporting a loss for the third quarter. Travelers Cos. gained 3.6 percent as earnings more than doubled on lower claims costs tied to natural disasters.

Economic Reports

Jobless claims increased by 46,000 to 388,000 in the week ended Oct. 13, Labor Department figures showed. The median forecast of 49 economists surveyed by Bloomberg called for a rise in claims to 365,000. The typical pattern of large increases in unadjusted claims at the start of the quarter seems to have shifted by a week in one state, causing the adjusted data to become volatile, a Labor Department spokesman said.

The index (BUX) of U.S. leading economic indicators rose in September by the most in seven months, boosted in part by a jump in permits for home construction that’s helping underpin the expansion. Manufacturing in the Philadelphia region expanded in October for the first time in six months, a sign the industry may be starting to stabilize.

‘Step Forward’

“It’s one step forward, half a step back,” said Tom Wirth, who helps manage $1.6 billion as senior investment officer for Chemung Canal Trust Co., in Elmira, New York. “The economy is picking up a bit of momentum, but not a lot. Earnings have been mixed. Plus, the market has gone up substantially and it doesn’t go in one direction.”

The Stoxx Europe 600 rose for a fourth day, adding 0.2 percent. Nestle SA (NESN) declined 1.7 percent after reporting nine- month sales growth that fell short of analysts’ estimates. Remy Cointreau SA (RCO) plunged 8 percent after France’s second-largest distiller posted first-half revenue growth that missed analysts’ projections.

Gold futures slid 0.5 percent to settle at $1,744.70 an ounce in New York. The S&P GSCI Index of raw materials was little changed.

Ten-year Treasury yields added two basis points. The U.S. auction of $7 billion in 30-year inflation-indexed bonds sold at a record-low yield as investors continue to pay a premium to guard against the threat of rising consumer prices.

Treasury Auction

The Treasury Inflation Protected Securities sale’s bid-to- cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.82, compared to an average of 2.71 over the past seven auctions. The offering drew a record low yield of 0.479 percent, versus the average forecast of 0.483 percent in a Bloomberg News survey.

The yen slid 0.4 percent to 79.28 per dollar as speculation that the Bank of Japan will boost stimulus measures sapped demand for the nation’s assets as a haven.

The euro slipped less than 0.1 percent to $1.3065. Europe is facing a dramatic situation and it would be fatal for governments to lessen their determination to solve the region’s financial woes, German Chancellor Angela Merkel said before a two-day summit of leaders in Brussels.

Sweden’s krona strengthened against all its major peers after the central bank governor Stefan Ingves said there are risks in keeping interest rates low that “can’t be ignored.”

The MSCI Emerging Markets Index added 0.3 percent. India’s Sensex (SENSEX) advanced 1 percent. The BUX Index in Hungary slumped 1.7 percent, extending the 0.7 percent drop yesterday after the government backtracked on a promise to cut a special bank tax in half and said it plans to push ahead with a transaction levy.

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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