Apple’s earnings ‘kicking the stock market when it’s down’
Apple Inc.’s disappointing profit report underscores a deeper problem gnawing at the stock market — the uninspiring revenue and earnings of many companies.
The technology giant has grown increasingly important to the market because it’s been one of the few large companies able to generate impressive profit growth. Its bellwether role has become more pronounced lately as the already soft U.S. economy has flashed warning signs that it could slow further.
Some analysts said Apple’s earnings miss in its fiscal third quarter was just a temporary hiccup between product cycles of its juggernaut iPhone. Nevertheless, it came at a time of increasing jitters about the economy.
“This is kicking the stock market when it’s down,” said Hugh Johnson, who runs his own investment firm in Albany, N.Y. “To have this at a time when investors are becoming very worried about the U.S. economy — about the impact of Europe and China and the potential impact of the fiscal cliff — the timing couldn’t be worse.”
The Dow Jones industrial average suffered its third consecutive triple-digit loss Tuesday as fears mounted that the latest flare-up of the European debt crisis could aggravate weakness in the United States. The Dow fell 104.14 points, or 0.8%, to 12,617.32 — bringing its three-day slide to 2.5%.
The Dow was on track for a larger decline Tuesday — it was off nearly 200 points — before rebounding partially in the final hour on reports that the Federal Reserve is strongly considering new action to boost growth.
The economy has been hamstrung by the cumulative effect of Europe’s troubles, China’s slowing growth and the so-called fiscal cliff in the U.S. That’s the mix of tax increases and government spending cuts scheduled to take effect Jan. 1 unless Democrats and Republicans can bridge their vast policy differences.
After expanding at a lethargic 1.9% annual rate in the first quarter, gross domestic product is projected to grow at only a 1.4% rate in the second quarter.
Business leaders are reluctant to expand their operations or hire new workers without a clear sense of government policy, experts say.
“We’re close to a tipping point in the economy,” said Bruce Simon, chief investment officer of City National Bank in Los Angeles. “We’re getting close to the expansion turning into a long flat period of no growth at all.”
European stock markets have been pounded this month by fear that Spain, the fourth-largest economy in the Eurozone, may need a financially debilitating government bailout. That has pushed its borrowing costs to 7.62% — far above the 7% considered the most the country could afford to finance its operations.
Share prices plunged anew Tuesday — with the Italian and Spanish markets sinking below their 2009 lows — after Moody’s Investors Service reduced its outlook for German debt. Investors also were spooked by rumors that Greece may not meet debt-reduction targets set in its own bailout this year.
The risks to U.S. investors are evident in analysts’ earnings outlooks.
Two-thirds of companies in the Standard & Poor’s 500 index have beaten analysts’ second-quarter estimates, better than the 62% long-term average, according to Thomson Reuters. But analysts have steadily lowered their forecasts over the last six months.
Second-quarter earnings now are projected to rise 6.2% from a year earlier, down from the 9.2% expected April 1 and the 14.3% predicted Oct. 1.
For the third quarter, they’re expected to rise a mere 0.7%.
International delivery giant United Parcel Service Inc. slashed its 2012 profit outlook Tuesday and predicted that the U.S. economy would rise an anemic 1% the rest of the year.
As for Apple, its earnings release spooked investors because of its outsized role in overall S&P; 500 results. The company is the biggest by market value in the index, and its earnings have been growing at a blistering pace over the last few years.
If Apple’s earnings were excluded from third-quarter projections, profit for the S&P; 500 would actually decline 0.6% rather than the forecast 0.7% rise, according to Thomson Reuters.
Its shares fell $32.90, or 5.5%, to $568.02 in after-hours trading.
“This is a big disappointment,” said Jack Ablin, chief investment officer of Harris Private Bank in Chicago. “This is a company that routinely knocks the cover off the ball every quarter.”
