Bloomberg News

U.S. Stocks Fall Most Since June on Microsoft, GE Results

October 19, 2012

U.S. stocks fell, giving benchmark indexes their biggest declines since June, as Microsoft Corp. (MSFT:US) and General Electric Co. (GE:US) results missed estimates and euro-area leaders failed to discuss aid for Spain at a summit.

Microsoft slid 2.9 percent after the largest software maker posted earnings that fell short of estimates. General Electric lost 3.4 percent as third-quarter revenue missed forecasts. McDonald’s Corp. (MCD:US) slumped 4.5 percent as sales growth slowed at U.S. stores. Advanced Micro Devices Inc. (AMD:US) dropped 17 percent after announcing a plan to cut staff by 15 percent.

The Standard & Poor’s 500 Index (SPX) S&P 500 retreated 1.7 percent to 1,433.19 at 4 p.m. in New York, on the 25th anniversary of the worst one-day stock crash in history. The equity benchmark trimmed its gain for the week to 0.3 percent. The Dow Jones Industrial Average declined 205.43 points, or 1.5 percent, to 13,343.51 today. About 7.3 billion shares traded hands on U.S. exchanges, 20 percent above the three-month average.

“The market is saying not so fast,” said Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees $961 billion. “People have been waiting for positive earnings surprises given that expectations have been lowered enough. In addition, there’s a perception that the European problems still have to be dealt with. Europe remains a headline risk.”

U.S. stocks snapped a three-day rally yesterday after Google Inc. (GOOG:US)’s third-quarter earnings missed analysts’ estimates. The S&P 500 has climbed 14 percent so far this year as economic data topped estimates, companies posted better-than-expected earnings and the Federal Reserve announced a third round of bond purchases.

Earnings Forecasts

Per-share profits trailed analyst forecasts at half of the 18 companies in the S&P 500 that released results since the close of trading yesterday. Since the start of the earnings season, profits have exceeded estimates at about 69 percent of the 117 companies in the S&P 500 that released results, according to data compiled by Bloomberg.

A European Union 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.

Home Sales

In the U.S., sales of previously owned homes held near a two-year high in September, restrained by a lack of supply that is pushing prices higher. 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, figures from the National Association of Realtors showed today in Washington.

All 10 industry groups in the S&P 500 declined today with indexes tracking technology, raw-materials producers and industrial stocks losing more than 1.7 percent. Caterpillar Inc. (CAT:US) tumbled 3.2 percent to $83.86.

“People got spooked when Google went negative mid-morning and that accelerated the sell-off,” Donald Selkin, the New York-based chief market strategist at National Securities Corp., said via phone. His firm manages about $3 billion of assets. “The market had gotten ahead of itself and the news of out Spain that they will delay seeking a bailout didn’t help.”

Google, Microsoft

Google lost 1.9 percent to $681.79 after rising as much as 1.7 percent earlier. Microsoft retreated 2.9 percent, the biggest since November, to $28.64. The company reported a 22 percent drop in fiscal first-quarter net income to $4.47 billion, or 53 cents a share, amid declining sales of Windows, its operating system. That missed the 56-cent average estimate (MSFT:US) of analysts polled by Bloomberg. The company also posted sales of $16 billion, missing the average estimate of $16.4 billion.

General Electric lost 3.4 percent, the most since Nov. 9, to $22.03 after reporting third-quarter revenue that fell short of the average analyst estimate (GE:US) as the decelerating global economy eroded demand for equipment from medical scanners to jet engines.

McDonald’s had its largest drop since 2009, falling 4.5 percent to $88.72. The world’s largest restaurant chain by sales reported (MCD:US) third-quarter profit fell 3.5 percent. Sales at U.S. stores open at least 13 months rose 1.2 percent in the quarter, marking the slowest growth in 11 quarters. Analysts projected an increase of 1.7 percent, according to 21 estimates compiled by Consensus Metrix.

Chipotle Mexican Grill Inc. (CMG:US) plunged 15 percent to $243 for the second-biggest loss in the S&P 500. The burrito chain criticized by hedge fund manager David Einhorn fell after posting third-quarter profit that trailed analysts’ estimates on slowing store sales growth.

AMD Drops

AMD had the biggest drop in the benchmark index for American equities, losing 17 percent to $2.18, its lowest level since 2009. The second-largest maker of processors for personal computers said that the job cuts will save $190 million next year, enabling the company to break even on quarterly revenue of $1.3 billion. AMD also forecast fourth-quarter sales that will miss analysts’ estimates.

Apple Inc. (AAPL:US) slipped 3.6 percent to $609.84. Shares of the iPhone maker have fallen 13 percent from an all-time high of $702.10 on Sept. 19, driving the stock below its average price in the past 100 days for the first time since July. The shares are still up 51 percent this year.

Intel Corp. (INTC:US), the world’s largest semiconductor maker, lost 1.9 percent to $21.27, while Cisco Systems Inc. (CSCO:US), the largest maker of networking equipment, retreated 3 percent to $18.04.

SanDisk Jumps

SanDisk Corp. (SNDK:US) surged 2.7 percent to $44.02. The maker of flash memory for mobile devices reported quarterly profit and revenue that beat analysts’ estimates on strong retail sales and high demand for mobile devices.

Capital One Financial Corp. (COF:US) added 6 percent to $60.75. The sixth-biggest U.S. bank by deposits rose after reporting (COF:US) a 45 percent increase in third-quarter profit that topped analysts’ forecasts.

A quarter century after the worst one-day stock crash in history, measures to prevent a repeat are failing to keep investors from losing confidence in the market.

The 23 percent plunge in the Dow 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.

Hedging Demand

Trading in an exchange-traded fund tracking the Chicago Board Options Exchange Volatility Index has jumped more than any other U.S. ETF this year, drawing investors betting that stocks will decline after the biggest rally in three years.

Trading in the fund, which is designed to return twice the daily performance of VIX short-term futures, has surged since September on speculation it will rebound from a 96 percent plunge this year. Demand is increasing for securities that move in the opposite direction as the S&P 500 amid political gridlock in Washington and a European debt crisis. The VIX rose 14 percent, the most since July, to 17.06 today.

“There’s a very high probability of a major pullback over the next six months, which would lead to a spike in volatility,” Steven Ayer, managing director and partner at Chicago-based HighTower Advisors, said yesterday in a phone interview. His firm manages about $25 billion. “It could come from the U.S. election and the fiscal cliff, it could come out of Europe and it could come in the form of another slow-down in economic growth. All of this could derail this liquidity high market. Take your pick.”

To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Rita Nazareth in New York at rnazareth@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

  • MSFT
    (Microsoft Corp)
    • $47.88 USD
    • -0.26
    • -0.54%
  • GE
    (General Electric Co)
    • $25.78 USD
    • -0.05
    • -0.19%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus