Tuesday, October 23, 2012

Stocks Socked Again on Earnings, Revenue Misses

Today's decline had no end-of-day rally from which to save itself. Stocks were down from open to close, and hard, owing mostly to a continuing spate of earnings disappointments and negative guidance outlooks.

Today's main culprits were a trio of Dow components, DuPont (DD), 3M (MMM) and United Technologies (UTX), though DuPont was clearly the worst of the bunch, recording a third quarter profit of just one cent per share, far below analyst estimates of 46 cents per share.

That report, early in the morning, hours before the market opened, sent futures crashing, so that the Dow opened with a triple digit loss in the first minutes of trading. Stocks could not recover, as it is quickly becoming clear that corporate earnings and revenues are lacking - 60% of companies reporting thus far have missed revenue estimates, many of which have been radically lowered. Meanwhile, Europe's woes continue to weight on markets globally, as the bourses across the continent showed heavy losses again.

The race for president also added to investor dismay, the predominant thinking that President Obama clearly outclassed challenger Mitt Romney in Monday night's final debate, focused on foreign policy, an obvious weak spot for the Republican. According to the best guesses on investor sentiment concerning the election, an Obama victory would be bad for stocks, because Obama favors more regulation and higher taxes for high wage earners, while Romney would likely favor policies which generally leave the status quo alone, allowing the abuses of the rich to continue and the wealth gap to widen.

All politics aside, it is actually fundamentals - for a welcome change - that are driving the most recent declines. Companies are reporting an assortment of earnings misses and sour outlooks for the remainder of 2012 and 2013, based almost entirely on current conditions, which have consumers strapped, governments broke and debt levels for all, unsustainable.

Where stocks will go from here is unknown, though all of the major indices have broken below their 50-day moving averages, generally a sign of more bad days to come.

Additionally, the advance-decline line has deteriorated badly over the past week, as has new highs-new lows, finally capitulating, with new 52-week lows outpacing new highs, 129-53

Dow components reporting on Wednesday include AT&T (T) and Boeing (BA), just a pair in a slew of over 400 companies that will be reporting throughout the day. Both of the Dow components report prior to the market open.

The silver lining in the recent declines is the slump in oil and gas prices. Motorists are already seeing 12-15 cent reductions in the price of a gallon of regular gas, with more easing to come, as crude oil is in the midst of a severe mean reversion, which could bring the cost of a gallon of gas to below $3.00 in some areas.

A reduction in the price of gas could be just what the market needs in time for the holidays, critically important to markets and, well, kids.

Dow 13,102.53, -243.36 (1.82%)
NASDAQ 2,990.46, -26.50 (0.88%)
S&P 500 1,413.11, -20.71 (1.44%)
NYSE Composite 8,197.14, -132.05 (1.59%)
NASDAQ Volume 1,780,896,750
NYSE Volume 3,233,623,000
Combined NYSE & NASDAQ Advance - Decline: 1709-3814
Combined NYSE & NASDAQ New highs - New lows: 53-129
WTI crude oil: 86.67, -1.98
Gold: 1,709.40, -16.90
Silver: 31.79, -0.459

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