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Stocks sag after companies release disappointing earnings reports

Stocks sag after companies release disappointing earnings reports
The corner of Wall and Broad streets across from the New York Stock Exchange. (AFP/Getty Images)

Stock markets around the world sagged Friday after Amazon and other big companies reported quarterly results that underwhelmed investors.

The Standard & Poor's 500 index slipped 3.32 points, or 0.1%, to 2,472.10, finishing a week packed with corporate earnings reports almost exactly where it started. It set a record high midweek.

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The Dow Jones industrial average rose 33.76 points, or 0.2%, to a new record of 21,830.31. The Nasdaq composite fell 7.51, or 0.1%, to 6,374.68.

A little more than half the companies in the S&P 500 have now shown how much profit they made during the spring quarter, and the results have been mostly encouraging. Earnings for the index are on pace to be about 9% higher than a year earlier, according to FactSet. But expectations were high coming into the reporting season, and the few companies that have fallen short of forecasts have seen their stock prices punished.

Amazon dropped $25.96, or 2.5%, to $1,020.04 after its profit missed expectations. Its forecast for operating income this fiscal year was also below many analysts' forecasts, though revenue for the latest quarter beat expectations.

Earnings reports were the main focus for markets during a busy week, where the Federal Reserve also decided on Wednesday to hold interest rates steady and the government on Friday gave an update on the economy's health.

The economy grew at an annual rate of 2.6% in the second quarter, revved up by a rise in consumer spending, the Commerce Department reported. Last quarter's growth rate was more than double that of the year's first quarter, which was revised down to 1.2%. The faster growth, though, was still a shade below the 2.7% that economists expected.

"Overall, the economy continues to move along, but it's hard to see where the fuel is going to come from for further acceleration," said Rich Weiss, chief investment officer of multi-asset strategies at American Century Investments. He said the economy reminds him of what golfers call a "son-in-law" shot — one that's not bad but not great.

"We're not throwing new money into the stock market at this point," Weiss said. Instead of U.S. stocks, he prefers foreign markets where he said economies have more potential for improvement. Many other investors have shifted their money using a similar philosophy, and the falling value of the dollar against other currencies has helped boost foreign stocks' returns.

Excitement about the U.S. economy was higher earlier in the year, when many investors expected the Republican takeover of Washington to lead to more pro-business policies. But inaction in the Capitol, capped by the Senate's latest failed attempt to revamp the nation's healthcare system, is raising doubts about whether tax reform or a big infrastructure plan will happen.

Tobacco stocks were some of Friday's worst performers after the U.S. government said it's considering limiting the amount of nicotine in cigarettes so they're no longer addictive. Altria Group, which sells Marlboro and other cigarettes in the U.S., dropped 9.5% to $66.94. It was down as much as 18.9% shortly after the Food and Drug Administration's announcement.

Flowserve, which sells pumps, valves and other parts for the oil and gas industries, was the biggest decliner in the S&P 500. It sank 10.9% to $41.30 after reporting weaker quarterly earnings than Wall Street forecast.

Starbucks fell 9.2% to $54.00 after it lowered its forecast for earnings this fiscal year. Goodyear Tire & Rubber sank 8.4% to $32.51 after it gave a forecast for 2017 operating income that fell short of expectations.

Mattel sank 7.8% to $19.64 after the El Segundo toy company reported disappointing quarterly results, pointing to lower sales of arts-and-crafts toys and toys marketed to girls.

Meanwhile, Align Technology jumped 10% to $173.06 after the San Jose maker of Invisalign tooth straighteners posted results that beat estimates and gave a strong forecast for the current quarter.

The yield on the 10-year Treasury note fell to 2.28%, from 2.32%. The two-year yield fell to 1.34%, from 1.36%, and the 30-year yield fell to 2.90%, from 2.93%.

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Stock markets around the world were weak. Japan's Nikkei 225 index lost 0.6%, South Korea's Kospi dropped 1.7%, and the Hang Seng in Hong Kong fell 0.6%. France's CAC 40 declined 1.1%, the FTSE 100 in London fell 1% and Germany's DAX went down 0.4%

The dollar fell to 110.60 yen, from 111.09 yen. The euro rose to $1.1760, from $1.1681, and the British pound rose to $1.3149, from $1.3070.

The price of oil capped off its best week since early December with another gain. Benchmark U.S. crude rose 67 cents to settle at $49.71 a barrel and touched its highest level since May. Oil gained nearly 9% over the week.

Brent crude, the international standard, rose $1.03 to $53.53 a barrel Friday. Natural gas fell 3 cents to $2.94 per 1,000 cubic feet. Heating oil rose 4 cents to $1.64 per gallon. Wholesale gasoline rose 3 cents to $1.68 a gallon.

Gold rose $8.80 to settle at $1,275.30 an ounce. Silver rose 12 cents to $16.70 an ounce. Copper was flat at $2.88 a pound.

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