Bloomberg News

U.S. Stocks Fall as Google Results Pull Down Tech Shares

October 18, 2012

U.S. stocks fell, snapping a three- day advance in the Standard & Poor’s 500 Index (SPX), as Google Inc. pulled down technology shares after reporting third-quarter profit and sales that missed estimates.

Google dropped 8 percent after the earnings report was filed inadvertently during regular trading hours. Technology shares had the biggest decline among 10 groups in the S&P 500. Philip Morris International Inc. (PM:US) dropped 4.2 percent as earnings trailed analysts’ estimates. Travelers Cos. gained 3.6 percent as earnings more than doubled on lower claims costs tied to natural disasters.

The S&P 500 fell 0.2 percent to 1,457.34 at 4 p.m. in New York. The index gained as much as 0.2 percent earlier as a rise in jobless claims was offset by better-than-estimated data on leading indicators and Philadelphia manufacturing. The Dow Jones Industrial Average slid 8.06 points, or 0.1 percent, to 13,548.94 today. The Nasdaq-100 Index tumbled 1.1 percent to 2,744.17. About 6.9 billion shares traded hands on U.S. exchanges, 14 percent above the three-month average.

“Google failed to meet expectations and then also mistakenly released in the middle of the day,” 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 Halted

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 final version of its earnings document. The company said R.R. Donnelley (RRD:US) & Sons Co. released a draft of the quarterly results without permission. Google tumbled the most since January, losing 8 percent to $695.

Google (GOOG:US)’s profit and sales missed analysts’ estimates, a sign that its tools are becoming less valuable to advertisers while costs associated with expansion into new businesses are chipping away at profitability. The average amount advertisers paid each time a user clicks on a promotion declined about 15 percent from a year earlier, and was 3 percent less than the prior period.

“The downward move in the market is more a result of the fundamentals,” Walter Todd, who oversees about $940 million as chief investment officer of Greenwood Capital in Greenwood, said in a phone interview. “The fact that it was released early, it exacerbates the dynamic but I don’t think we would have fallen any less if the numbers had come out after the market.”

Crimping Demand

Technology shares erased 1.5 percent as a group in the S&P 500. Apple Inc. (AAPL:US) slid 1.9 percent to $632.64 and International Business Machines Corp. (IBM:US) dropped 2.8 percent to $194.96. AOL Inc. (AOL:US) declined 1.9 percent to $36.36. Online-coupon provider Groupon Inc. (GRPN:US) slipped 3.4 percent to $4.91. Facebook Inc. (FB:US), the world’s most popular social-networking service, lost 4.6 percent to $18.98.

Microsoft Corp. (MSFT:US) fell 2.4 percent to $28.79 at 5:11 p.m. as it released results after the close of regular trading. The largest software maker reported fiscal first-quarter profit and sales that fell short of analysts’ estimates as declining personal computer sales crimped demand for Windows, its core operating system.

U.S. stocks slumped early in the trading day as Labor Department figures showed more Americans than forecast filed applications for unemployment benefits last week, reflecting an unwinding of adjustments for seasonal swings at the start of a quarter.

Philadelphia Expands

Equities pared declines as the index 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. The Federal Reserve Bank of Philadelphia’s general economic index rose to 5.7 in October from minus 1.9 in September. A reading of zero is the dividing line between expansion and contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

“The market is digesting some strong gains earlier in the week and the disappointing jobless claims number,” Jim Russell, the Cincinnati-based chief equity strategist at U.S. Bank Wealth Management, which oversees about $113 billion, said in a phone interview. “The data cadence is two steps forward, one step back right now with a positive bias. It does appear as if things are firming up at the margin for the U.S. economy and the Philly Fed report confirms that.”

Romney Leads

Economic issues including jobs are central to the race for the American presidency. Gallup’s daily tracking of registered voters conducted Oct. 10 through Oct. 16 showed President Barack Obama with 46 percent and Republican challenger Mitt Romney with 48 percent support. The margin of error is two percentage points.

“Everything seems paused until we get clarity on the election since there are a lot of economic policy issues that need to be resolved before the end of the year,” Thomas Nyheim, a Wilmington, Delaware-based fund manager for Christiana Trust, which oversees about $13 billion, said in a telephone interview.

The S&P 500 has rallied 16 percent so far this year as economic data topped estimates, companies posted better-than- expected earnings and the Fed announced a third round of bond purchases.

As many as 28 companies listed on the S&P 500 release results today, according to data compiled by Bloomberg. Of the 104 companies in the benchmark index that have reported since Oct. 9, 75 posted earnings that exceeded analyst estimates, while 26 missed them, the data showed.

Less Smoking

Philip Morris International, the world’s largest publicly traded tobacco company, dropped 4.2 percent to $88. The maker of Marlboro cigarettes posted third-quarter profit that trailed analysts’ estimates. European Union nations facing a debt crisis and high unemployment saw smokers cut back or switch to contraband cigarettes or roll-your-own varieties. Sales in the region slipped 15 percent in the third quarter.

Morgan Stanley (MS:US) slipped 3.8 percent, the most since July, to $17.79 even after the sixth-largest U.S. bank reported results that beat analysts’ estimates, as revenue from fixed-income trading almost doubled from the second quarter. Morgan Stanley had a loss of $1.01 billion, or 55 cents a share.

Boston Scientific Corp. (BSX:US) fell 3.9 percent to $5.40. The heart-device maker lowered (BSX:US) its forecast for full-year revenue to no more $7.24 billion from a previous range of $7.2 billion to $7.4 billion. Analysts on average estimated $7.26 billion in sales for the year.

Natural Disasters

Travelers climbed 3.6 percent to $73.94 for the biggest gain in the Dow. Chief Executive Officer Jay Fishman, 59, has bought back shares, raised rates for coverage and changed policy terms to improve shareholder returns as near record-low interest rates pressure income from the investment portfolio.

Property-casualty insurers have benefited from fewer natural disasters this year after record losses in 2011. Allstate Corp. (ALL:US), the largest publicly traded U.S. home and auto insurer, advanced 1.8 percent to $42.62 today. Chubb Corp. (CB:US), which competes with Travelers selling commercial coverage, jumped 2.9 percent to $81.19. Ace Ltd. (ACE:US) gained 3 percent to $81.70.

EBay Inc. (EBAY:US) rallied 5.5 percent to $50.83, the highest level since 2005. The world’s largest online marketplace rose the most in three months after third-quarter results fueled optimism that the company’s turnaround is gathering steam. Chief Executive Officer John Donahoe has been spending money on mobile technology, marketing campaigns and a website redesign, seeking to vault the company beyond its roots in Internet auctions.

Macau Gambling

MGM Resorts International (MGM:US) jumped 2.3 percent to $11.17. MGM China Holdings Ltd., a venture between Pansy Ho and MGM Resorts, won a land grant to develop a second casino resort in Macau. The approval allows MGM China to build on the city’s increasingly popular Cotai strip, where the operator doesn’t have a presence.

Lam Research Corp. (LRCX:US)rose (LRCX:US) 7.2 percent to $36.01 for the biggest gain in the S&P 500. The chip-equipment manufacturer reported first-quarter earnings that beat analyst estimates.

To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

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


Toyota's Hydrogen Man
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • PM
    (Philip Morris International Inc)
    • $83.05 USD
    • -0.97
    • -1.17%
  • GOOG
    (Google Inc)
    • $516.35 USD
    • 5.25
    • 1.02%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus