Earnings reports stifle stocks
Stocks retreated Tuesday after aluminum producer Alcoa and chip maker Advanced Micro Devices reported disappointing financial results and the Federal Reserve released minutes showing central bankers’ concerns about the slumping economy.
A 54% drop in Alcoa’s first-quarter profit and a 15% decline in AMD’s first-quarter sales -- as well as a lowered profit forecast by chip maker Novellus Systems -- led some investors to conclude that they might have to pare their estimates of overall corporate profits for the quarter and year.
“While investors had a pretty much washed-out, pessimistic view of the economy, those investors also had an unrealistic view on earnings,” said Jack A. Ablin, chief investment officer at Harris Private Bank.
The minutes of the Fed’s March 18 meeting showed that some policymakers were worried about the possibility of a “prolonged and severe” business downturn -- longer than the six-month economic contraction forecast then by Fed analysts.
The meeting report also indicated that Fed officials were conflicted over how much further interest rates could be reduced without triggering higher inflation. The central bank ended that meeting by trimming its benchmark rate 0.75 of a percentage point.
The Dow Jones industrials started the day more than 85 points lower on the weak first-quarter earnings and then partly recovered, only to slide again when the Fed minutes were released.
After regaining ground late in the session, the Dow finished down 35.99 points, or 0.3%, to 12,576.44.
Broader stock indicators also dropped. The Standard & Poor’s 500 index fell 7 points, or 0.5%, to 1,365.54, and the Nasdaq composite index lost 16.07 points, or 0.7%, to 2,348.76, taking a larger hit because of concerns about high-tech companies after the news from AMD and Novellus.
The Russell 2,000 index of smaller companies fell 0.76 of a point, or 0.1%, to 711.92.
Government bond yields were little changed. The 10-year Treasury note rose to 3.56% from 3.54% late Monday.
Oil futures fell 59 cents to $108.50 a barrel on the New York Mercantile Exchange. Gold prices closed down, while the dollar traded mixed against other major currencies.
Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where consolidated volume was about 3.66 billion shares, nearly equal to Monday.
Adding to the stock market’s downbeat tone was a report from the International Monetary Fund, which said that despite “unprecedented intervention” by the Fed and other central banks, “financial markets remain under considerable strain.” The group estimated that potential credit-related losses for the global financial industry had reached $945 billion as of March.
In addition, the National Assn. of Realtors said pending home sales fell by 1.9% in February compared with January, worse than many analysts had predicted, but the market had little reaction.
Washington Mutual, one of the many financial companies hurt by investments in soured mortgages, said it was raising $7 billion by selling a stake to a private equity investment group. But the Seattle-based thrift also said it would lose $1.1 billion in the first quarter, stash away $3.5 billion for loan losses and cut its quarterly dividend to shareholders to a penny from 15 cents.
Washington Mutual shares, which soared Monday on word of the talks about the capital infusion, Tuesday fell $1.34, or 10%, to $11.81.
Among the firms reporting quarterly results, Alcoa fell 26 cents to $37.18, after dropping 4% on Monday before its late-in-the-day earnings release.
AMD shares fell 31 cents, or 4.9%, to $6.03, and Novellus fell $1.93, or 8.1%, to $21.88.
GlaxoSmithKline slid $1.79, or 4%, to $43.24 after regulators cited the drug maker for not reporting safety results on its diabetes pill Avandia.
Student loan services provider First Marblehead fell $2.84, or 37%, to $4.86 after the guarantor of its loans filed for bankruptcy protection.
Overseas, key stock indexes fell 1.5% in Japan, 0.4% in Britain, 0.7% in Germany and 0.6% in France.
