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

Market Gains on Low Volume

A quick overview of Monday's trading follows. More on Tuesday after the bell.

Awaiting the 3rd quarter earnings report from Apple (AAPL), investors were encouraged by the number of S&P companies which reported earnings better than estimates (78%) last week and further weakness in the dollar as the session unfolded.

Dow 10,092.19, +96.28 (0.96%)
NASDAQ 2,176.32, +19.52 (0.88%)
S&P 500 1,097.91, +10.23 (0.94%)
NYSE Composite 7,222.21, +88.25 (1.13%)

Advancing issues led losers, 4415-1889. There were 819 stocks making new 52-week highs, to 100 new lows. Volume was exceedingly low, signaling a large degree of caution at the very start of the biggest week of earnings reports. If the low volume pattern continues through the next few days, it could be indicative of a short-term market top. However, most companies have not yet reported, so not much can be read into one day's trading volume.

NYSE Volume 3,816,968,500
NASDAQ Volume 1,725,801,875

Oil reached a new high for the year, trading up $1.08, to $79.61. Gold advanced $7.90, to $1,066.00. Silver tacked on 21 cents, to close at $17.63 per ounce.

Besides Apple reporting after the close, five Dow components will report prior to Tuesday's opening bell. Caterpillar (CAT), Pfizer (PFE), United Technologies (UTX), Coca-Cola (KO) and DuPont (DD) are the companies reporting.

Markets Pare Gains on Profit Weakness

Earnings continued to roll out on Wednesday, with the following highlighting a heavy day of releases:

• CIT Group (CIT): Second-quarter loss after paying preferred dividends of $134.5 million, of 70 cents per share was reported, compared with a profit of $236 million, or $1.16 per share, in the year-ago period. The results include a charge of $495.3 million, or $2.58 per share, from the planned exit of its home lending business, making CIT yet another casualty of the subprime mortgage industry implosion. Analysts expected 1.35. The stock dropped 6.26 (11.29%) on the news.


• eBay (EBAY): Reported earnings of $375.8 million, or 27 cents per share, compared with earnings of $250 million, or 17 cents a share, for the same period last year. Analysts expected 0.32


• Gannett (GCI): Excluding a $73.8 million gain from the sale of several newspapers and earnings from discontinued operations in both periods, Gannett earned $289.9 million from continuing operations in the quarter, down 4.8 percent from $304.5 million in the same period a year earlier. Per-share earnings on the same basis came in at $1.24 versus $1.28 in the same period a year ago. Analysts expected 1.21


• Pfizer (PFE): Excluding items, adjusted profit fell 20 percent to $2.94 billion, or 42 cents per share, from $3.66 billion, or 50 cents per share, a year ago. Analysts expected 0.50


• Piper Jaffray (PJC): Second-quarter net income was $9.3 million, or 52 cents per share, compared with earnings of $4.1 million, or 21 cents per share, in the second quarter of 2006. Analysts expected 0.74. Shares were off 3.69 (6.72%).


• Southwest Airlines (LUV): Earned $278 million, or 36 cents per share in the April-June quarter, compared with $333 million, or 40 cents per share, a year earlier. After adjusting for fuel-hedging transactions, Southwest said it would have earned 25 cents per share. Analysts expected 0.22


• United Technologies (UTX): Earnings per share for the quarter that ended June 30 were $1.16. Analysts expected 1.15

Most of the big names offered disappointing results, and it took a toll on the overall market.

Dow 13,918.22 -53.33; NASDAQ 2,699.49 -12.80; S&P 500 1,546.17 -3.20; NYSE Composite 10,148.28 -22.08

The results thus far for companies reporting 2nd-quarter earnings have been mixed with some major misses, not a positive trend for a market that's just made new highs. Add to the sour mood of today, Fed Chairman Ben Bernanke's remarks that the sub-prime lending ordeal is likely to worsen, though the US economy is in good overall shape. He has his doubters, however, and signs of a significant slowdown are everywhere.

Today's trade was also somewhat deceptive. All of the indices were down more than twice their closing losses. Some serious tape-painting occurred in the last hour of trading.

Declining issues once again overwhelmed advancers, by nearly a 2-1 margin. New lows surpassed new highs for the first time in weeks, 375-229. This is a definite sell signal that's been building for weeks.

Oil continued to weigh on the market as well, with the price of crude for August delivery gaining another $1.03 on the NY Merc, to close at $75.03.

Gold moved up to $673.70, a gain of $7.80, while silver added 27 cents to close out at 13.29. There's a growing number of commodity specialists who believe the precious metals are due for another run-up on inflation concerns, though both are near historic highs and have been stuck in trenches for more than 18 months.

There may have been consolidation in these commodities as positions have been unraveled, though most of the speculators are calling for doubling or even tripling in price over the next 2-3 years. Those predictions have been around for years, and, following the movements of the metals, they are highly cyclical and they seem to be on the downside of their most recent bullish cycle.

On the other hand, the gold cycle is very long, and neither gold nor silver has yet to show signs of breaking the long term uptrend. With inflation running rampant, they are not the worst investments, but stocks have performed much better over the last year and a half. These should be only held in large quantity if the potential for a complete market crash is high, and that's certainly not the case at present.

Watch out for the remainder of this week. Any more profit disappointments may just cause outright flight from equities for the summer.