Bloomberg News

U.S. Stocks Decline as Ukraine Crisis Offsets Earnings

August 07, 2014

U.S. stocks fell, after erasing an early advance, as concern that the Ukraine conflict is escalating offset better-than-estimated earnings and a drop in American jobless claims.

Mylan Inc. slipped 1.3 percent as the drugmaker’s earnings forecast fell short of analyst estimates. 21st Century Fox Inc. climbed 6.6 percent as “X-Men: Days of Future Past” and “Rio 2” led to a jump in income at its film business. Symantec Corp. advanced 3.3 percent as sales beat projections.

The Standard & Poor’s 500 Index fell 0.3 percent to 1,914.59 at 11:48 a.m. in New York, reversing an earlier advance of 0.5 percent. The Dow Jones Industrial Average dropped 55.44 points, or 0.3 percent, to 16,387.90. Trading in S&P 500 companies was in line with the 30-day average for this time of day.

“You just have some geopolitical fear out there that investors always place some risk premium on,” Greg Woodard, a strategist in Fairport, New York, at Manning & Napier Inc., which has about $54 billion under management, said in a phone interview. “If you have underlying fundamentals improving, you have individual companies doing well, and you get some volatility as a result of macroeconomic worries, we’d view that as an opportunity to selectively buy.”

The S&P 500 has lost 3.5 percent since reaching a record of 1,987.98 on July 24. The benchmark slid 2.7 percent last week, its biggest drop since June 2012, as companies around the globe posted disappointing results, Argentina defaulted and the U.S. and European Union expanded sanctions against Russia.

European Central Bank President Mario Draghi said the risks to the recovery from conflicts including that in Ukraine are increasing. Headwinds facing the 18-nation euro area’s recovery are intensifying after Italy slipped back into recession and the standoff between Russia and the U.S. and its allies escalated into the worst such conflict since the Cold War.

‘Step Back’

NATO Secretary General Anders Fogh Rasmussen urged Russia to “step back from the brink” by pulling back troops and halting aid for rebels.

Russia has massed troops along its border with Ukraine, prompting the U.S. to say there’s a risk of an invasion. President Putin retaliated yesterday against EU and U.S. sanctions by ordering restrictions on food imports from countries that seek to punish Russia.

“Heightened geopolitical risks, as well as developments in emerging-market economies and global financial markets, may have the potential to affect economic conditions negatively,” Draghi said at a press conference in Frankfurt today after the ECB kept its main interest rates unchanged.

Stimulus Program

Draghi has said large-scale asset purchases are an option for dealing with a severe economic shock, leaving investors seeking clarification on what the trigger could be.

In the U.S., data showed fewer Americans filed applications for unemployment benefits last week, sending the average over the past month to an eight-year low, a sign the labor market continues to gain momentum. Jobless claims decreased by 14,000 to 289,000 in the week ended Aug. 2 from 303,000 in the prior period. The median forecast of 47 economists surveyed by Bloomberg called for an increase to 304,000.

The government’s employment report last week showed companies in the U.S. added more than 200,000 jobs for a sixth straight month in July, the longest such period since 1997. U.S. gross domestic product expanded at a 4 percent annual pace in the second quarter, confirming the Fed’s view that a first-quarter contraction was transitory.

Earnings Season

News Corp. and CBS Corp. are among 17 S&P 500 members that report their financial results today, according to data compiled by Bloomberg. About 75 percent of companies to have posted earnings this season beat analysts’ estimates for profit, while 65 percent exceeded sales projections.

Profit probably rose 9.4 percent in the second quarter, while sales gained 4.2 percent, according to analyst estimates compiled by Bloomberg.

“The year-on-year revenue and profit growth rate looks pretty encouraging this time round,” said William Hobbs, the London-based head of equity strategy at Barclays Plc’s wealth-management unit. “Not only are we having a good earnings season, but our faith in the second half of the year for the U.S. corporate sector should be increasing. Recent economic data is pointing to a faster pace of growth in the third quarter than consensus has penciled in.”

The Chicago Board Options Exchange Volatility Index, which usually moves in the opposite direction to the S&P 500, fell 2.9 percent to 15.89 today. The VIX soared 34 percent last week, the most since January.

Mylan Falls

Six out of 10 major industries in the S&P 500 declined. Phone and consumer-staples companies lost more than 0.5 percent for the biggest losses. Utilities climbed 0.9 percent.

Mylan slipped 1.3 percent. The drugmaker said third-quarter adjusted profit will probably not climb above 95 cents a share, less than the $1.03 that analysts had projected. Mylan narrowed its forecasts for annual sales and profit, saying the Food and Drug Administration had delayed approving some of its products.

Fox rose 6.6 percent. Fourth-quarter profit topped analysts’ estimates one day after the company dropped its $75 billion bid for Time Warner Inc. Box-office sales from “X-Men: Days of Future Past” and “Rio 2,” along with the addition of the YES Network, helped overcome a tough climate for cable ads and Fox Broadcasting’s struggle to develop hits to succeed the fading “American Idol.”

Symantec climbed 3.3 percent. The biggest computer-security software maker is getting a boost as demand picks up for anti-hacking tools, with revenue and profit topping estimates in the fiscal first quarter.

CenturyLink Inc. (CTL:US) gained 1.9 percent. The telecommunications company reported second-quarter adjusted earnings of 72 cents a share, more than the 65 cents predicted by analysts (CTL:US).

Carnival Corp. (CCL:US) added 1.9 percent after Bank of America Corp. raised its rating (CCL:US) on the cruise-ship operator to buy from neutral.

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

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


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Companies Mentioned

  • CTL
    (CenturyLink Inc)
    • $40.57 USD
    • 0.88
    • 2.17%
  • CCL
    (Carnival Corp)
    • $42.12 USD
    • -0.14
    • -0.33%
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