Bloomberg News

Stocks Drop Most Since June on Earnings; Metals, Oil Fall

October 19, 2012

Stocks Drop Most Since June on Earnings as Metals, Oil Retreat

A trader works on the floor of the New York Stock Exchange (NYSE) on Oct. 19, 2012. Photographer: Scott Eells/Bloomberg

U.S. stocks slid the most since June and Treasuries rose as companies from General Electric (GE:US) Co. to McDonald’s Corp. and Microsoft Corp. posted results below estimates and euro-area leaders failed to discuss aid for Spain at a summit. Metals and oil led a slump in Commodities.

The Standard & Poor’s 500 Index fell 1.7 percent at 4 p.m. in New York, its worst drop since June 21, as GE, McDonald’s and Microsoft lost at least 2.9 percent. The Stoxx Europe 600 Index declined 0.8 percent, paring its advance this week to 1.7 percent. Ten-year Treasury yields fell seven basis points to 1.76 percent after rising for four straight days. The euro weakened against the dollar for a second day while copper and oil dropped more than 2 percent.

Stocks slid on the 25th anniversary of the worst one-day crash in U.S. history as profits trailed analyst estimates at half of the 18 companies in the S&P 500 that released results since the close of trading yesterday, undermining confidence in an earnings season that had seen about three-quarters of companies beat forecasts. Reports today showed sales of previously owned U.S. homes decreased, while foreign direct investment into China declined more than economists predicted.

“The sell-off has been worsening and no one wants to be long over the weekend,” Frank Ingarra, who helps manage $1.4 billion at Greenwich, Connecticut-based NorthCoast Asset Management LLC, said in a phone interview. “We have a lack of good earnings numbers from the big names such as McDonald’s, Microsoft and GE, the housing numbers were weak and the resolution in Europe is taking longer than everyone expected.”

Crash Anniversary

The S&P 500 slipped for a second day after rallying 2.3 percent over the previous three sessions, its best gain in more than a month. The benchmark gauge trimmed its weekly advance to 0.3 percent.

The 23 percent plunge in the Dow Jones Industrial Average on Oct. 19, 1987, came amid signs of a slowing economy, the threat of higher taxes and concern among individuals that trading was rigged for insiders.

Today’s investors have pulled $440 billion from U.S. equity mutual funds since 2008 and sent trading to the lowest levels in at least four years, retrenching after the worst financial crisis since the Great Depression and the May 2010 stock crash, data compiled by Bloomberg and the Investment Company Institute show.

Market Movers

General Electric declined 3.4 percent after posting quarterly sales of $36.3 billion, missing the average analyst estimate (GE:US) for revenue of $36.9 billion as foreign-exchange moves hurt sales by $1.1 billion. Microsoft Corp. slid 2.9 percent after reporting fiscal first-quarter profit and sales late yesterday that missed estimates as sales of its Windows operating system declined. McDonald’s, the world’s largest restaurant chain by sales, dropped 4.5 percent, the most in more than three years, as third-quarter profit fell 3.5 percent as sales growth slowed at U.S. stores.

Advanced Micro Devices Inc. sank 17 percent for its biggest drop in four years. The second-largest maker of processors for personal computers forecast fourth-quarter sales that will miss analysts’ estimates and said it will cut 15 percent of its staff. Chipotle Mexican Grill Inc., the burrito chain criticized by hedge fund manager David Einhorn, fell 15 percent after posting third-quarter profit that trailed analysts’ estimates on slowing store sales growth.

Earnings Season

Per-share profits have exceeded analysts’ estimates at about 69 percent of the 116 companies in the S&P 500 that released results so far, according to data compiled by Bloomberg. Earnings have increased less than 0.1 percent for the group on a 1.8 percent gain in sales.

Forecasts for third-quarter profits have grown more optimistic as the earnings season progresses. Analysts now project a 0.3 percent drop in S&P 500 earnings for the period, according to a Bloomberg survey, compared with a decrease of 2 percent predicted on Sept. 28.

U.S. equities maintained losses today as a report showed purchases of existing houses, tabulated when a contract closes, decreased 1.7 percent to a 4.75 million annual rate, matching the median forecast of economists surveyed by Bloomberg. The figures from the National Association of Realtors also showed the median prices from a year earlier jumped by the most since 2005 as inventories dwindled.

Copper declined the most in six months, tumbling 2.8 percent to $3.6375 a pound, and aluminum slipped 2.2 percent to $1,970 a ton. China is the biggest buyer of industrial metals. Gasoline slipped 1.8 percent to $2.6963 a gallon, the lowest settlement price since July 2, and has lost almost 9 percent in seven sessions.

Copper traders who a week ago were the most bearish in four months are now the most bullish in a year after economic reports signaled accelerating growth from China to the U.S.

Copper Predictions

Seventeen analysts surveyed by Bloomberg said they expect prices to gain next week and four were bearish. A further three were neutral, making the proportion of bulls the highest since October 2011. They were the most negative since June 1 last week. Hedge funds’ bets on a rally are near the biggest in 14 months, U.S. Commodity Futures Trading Commission data show.

Natural gas touched a 10-month high in New York on speculation that above-normal demand from electricity generators will help reduce a supply surplus.

Gas rose as much as 1.7 percent after an Energy Department report yesterday showed inventories expanded by 51 billion cubic feet, less than the five-year average gain of 71 billion for the week. Supplies climbed 106 billion a year earlier. Power plants are burning record amounts of the fuel this year as seasonal prices near decade lows prompted a switch from coal.

European Markets

European banks dropped 2.2 percent as a group, contributing the most to the Stoxx 600 (SXXP)’s retreat, following the EU summit. Aggreko Plc slumped 7.2 percent after increasing its provisions for bad debt, while Bunzl Plc lost 4.1 percent after saying its sales growth has slowed. Carrefour SA (CA) jumped 5.9 percent as Europe’s largest retailer agreed to sell its Colombian unit to Cencosud SA for 2 billion euros.

A EU summit failed to discuss further financial assistance for Spain, according to French President Francois Hollande. Germany and France agreed to enforce common banking regulation for the euro area’s 6,000 lenders by the end of next year.

Yields on benchmark 10-year German bunds dropped four basis points to 1.59 percent. Credit-default swaps on Germany fell 2.5 basis points to 33, the lowest since October 2010.

The MSCI Emerging Markets Index slid 0.8 percent, paring its biggest weekly rally in more than a month, as computer companies retreated and a Chinese central bank adviser said stimulus will be limited.

To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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