US Stocks Tumble Amid Signals Slow Growth Will Weigh on Earnings
07/10/2012| 04:41pm US/Eastern
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--Stocks lower as tech, industrial companies broadcast weak future earnings
--Alcoa tumbles after Monday's earnings report
--Small business optimism falls in June to lowest reading since October
By Chris Dieterich
NEW YORK--Worries from the tech and industrial sectors and an underwhelming earnings report from bellwether Alcoa sent stocks tumbling.
The Dow Jones Industrial Average dropped 83.17 points, or 0.7%, to 12653.12 Tuesday. The Standard & Poor's 500-stock index fell 10.99 points, or 0.8%, to 1341.47. Both benchmarks lost ground for the fourth session in a row. For the S&P 500, it's the longest losing streak in nearly two months.
The Nasdaq Composite Index's decline was steeper following a pair of dour forecasts from microchip makers. The tech-heavy benchmark lost 29.44 points, or 1%, to 2902.33.
Advanced Micro Devices slumped 11% after the company cut its second-quarter revenue outlook late Monday, citing weaker-than-expected business conditions in China and Europe. Also weighing on tech stocks was Applied Materials, down 2.7% after the firm lowered its full-year guidance to reflect weaker-than-expected demand in its semiconductor business.
Industrial and materials stocks were the worst-performing sectors on the S&P 500, after truck-engine maker Cummins cut its full-year sales estimate below expectations, noting slowing demand in the U.S., as well as China, India and Brazil. Cummins's shares declined 9%, while heavy-machinery maker Caterpillar also fell 3.5%.
Alcoa sank 4.1% and was the Dow's biggest decliner after the industrial metals producer posted an earnings loss late Monday amid slumping aluminum prices. Alcoa's report, the first by a blue-chip company, unofficially kicked off earnings season.
"Last night's Alcoa earnings weren't great, and add to that a few tech warnings, and we get a slow degradation," said Robert Verderese, managing director on the trading floor at Knight Capital. "Until earning reports and guidance come in, the jury is still out," Mr. Verderese said.
U.S. stocks initially followed European markets, which ended broadly higher after euro-zone finance ministers agreed to make billions of dollars in aid available for Spain's banking industry. The Stoxx Europe 600 added 0.8% to snap a four-session losing streak.
The blue chips rose shortly after the opening bell, but soon eased back. Yields on Italian bonds ticked higher after the country's prime minister, Mario Monti, reiterated that Rome won't need a bailout, but suggested that it might need to dip into Europe's stability fund to keep borrowing costs under control.
"The effects of good news from Europe are getting shorter and shorter," said Paul Zemsky, global head of asset allocation at ING Investment Management. "And, in general, there's still a lot of fear that earnings will disappoint," Mr. Zemsky said.
In economic news, the National Federation of Independent Business's small-business optimism index fell in June to its lowest reading since October, missing expectations.
Asian markets fell after data from China signaled slowing demand in the world's second-largest economy. China's Shanghai Composite slipped 0.3% to a six-month low, while Japan's Nikkei Stock Average lost 0.4% to suffer its fourth-consecutive decline.
On Wednesday, investors will be watching the release of minutes from last month's meeting of the Federal Reserve's policy-making arm for signs that U.S. central bankers are ready to take additional steps to prop up the flagging U.S. economy.
Crude-oil futures shed 2.4% to settle at $83.91 a barrel, while gold futures fell 0.6% to settle at $1579.30 a troy ounce. The U.S. dollar edged higher against the euro but slipped against the yen. The yield on 10-year U.S. Treasury bonds inched lower to 1.500%.
In other corporate news, Wolverine World Wide rose despite reporting a 14% decline in quarterly earnings, as the shoe company's revenue edged higher and inventories fell.
Shaw Group slid 9.2% after the technology and engineering company's quarterly loss narrowed across businesses that range from restoration of contaminated land to construction of military housing.
Helen of Troy skidded 14% after reporting quarterly earnings that declined 4.6%, and the housewares and personal-care products company lowered its earnings guidance for the 2013.
Forest Oil stumbled 9.8% after the company said it plans to cut production in some regions, as it turns its focus to developing its Eagle Ford position in southern Texas.
Mako Surgical tumbled 43% after the medical device company lowered its 2012 outlook for sales and procedures, and as analysts at Goldman Sachs lowered their stock-recommendation rating, saying they've been "too bullish."
J.C. Penney fell 5.8% after analysts at Credit Suisse said second-quarter sales are looking worse than the 20% drop posted in the first quarter. Additionally, the department-store retailer cut 350 additional jobs on top of the 600 employees the company said it would it would dismiss back in April.
Write to Chris Dieterich at christopher.dieterich@dowjones.com
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