Stocks Fell amid Earnings Anxiety and Growth Woes

Published on Tuesday, 10 July 2012 16:57 Written by Christopher Lynn

New York, July 10^th (TradersHuddle.com) – Stocks fell after an earlier rally faded, with the Dow posting its fourth straight loss, as optimism that a top German court will approve the euro zone's new bailout fund faded, amid several profit warnings and Chinese trade data, which suggested the world’s second largest economy was slowing down more than expected.

The Dow Jones Industrial Average lost 83.17 points or 0.65%. The S&P 500 index fell 10.99 points, or 0.81%, while the NASDAQ dropped 29.44 points, or 1%.

The market started with gains, helped by improved sentiment in Europe as finance ministers ratified the Spanish banking sector bailout and speculation that Germany will receive approval from its top court to go ahead with the region’s bailout fund. Spanish yields moved below 7%, while better than expected manufacturing data points in Italy and the U.K. helped the tone. However global growth jitters remained after import data in China was weaker than expected, indicating softer domestic demand.

Stocks moved from gains to choppy trading, with the major benchmark indices moving into negative territory, pressured by the concerns over global growth and as several profit warnings damped investor sentiment on an earnings season that just started last night with Alcoa.

Most of the S&P 500 sectors closed lower, with industrials, materials, and energy leading the decline. Consumer staples and utilities climbed. In the consumer staple sector, Kraft Foods (NASDAQ: KFT) was the top Dow component, while Coca Cola (NYSE: KO) finished flat after the company announced a 2 for 1 stock split for the first time in 16 years.

Economic sensitive stocks were under heavy pressure. In the materials space, Alcoa (NYSE: AA) led the decliners in the blue chip index, as it tumbled 4.11% after the company reported inline earnings on revenues that beat expectations. The aluminum producer said Aluminum prices continue under pressure, despite seeing increased demand in the aerospace and auto sectors.

Caterpillar (NYSE: CAT) was another Dow component that was heavily influenced by the growth worries and after engine maker Cummins (NYSE: CMI) slashed its full-year sales forecast. Caterpillar lost 3.5% and Cummins tumbled nearly 9%, pressuring the industrial sector and posting the second biggest decline in the S&P 500

Also in the sector, Southwest Airlines (NYSE: LUV) jumped 4.2% after a sharp drop in crude oil prices and after the stock was upgraded to a Buy from Neutral at Sterne Agee. Southwest was the best stock in the broad market index.

Semis weighed on the tech sector after a couple of weak outlooks. Advanced Micro Devices (NYSE: AMD) slumped to the bottom of the S&P 500, plunging more than 11% after the company slashed its sales outlook, saying it expects sales to drop 11% in the second quarter, due to softer-than-expected channel sales in China and Europe. Applied Materials (NASDAQ: AMAT) fell 2.72% after saying that it expects fiscal third quarter earnings to be well below its prior guidance. Additionally, the company cut its fiscal 2012 sales outlook.

The news pressured Intel (NASDAQ: INTC), which lost more than 2%. The world’s largest chipmaker announced that it would be acquiring a 15% stake in Dutch chipmaker ASML Holding (NASDAQ: ASML) for $4 billion.

Meanwhile, Apple (NASDAQ: AAPL) fell 0.93% to $608.21, dragged lower by the broad market weakness and concerns over consumer demand. BMO Capital raised its target price on the stock to $700 from $695, a day after Piper Jaffray analyst Gene Munster said that it expects that the tech giant could sell up to 6 million mini iPads that would retail for $299 in the December quarter.

Elsewhere, Mako Surgical (NASDAQ: MAKO) got clobbered, as the stock plunged more than 40% after the company preannounced lower than expected sales for its surgical robot, while slashing its revenue forecast for the full year. Several brokerage firms weighed in. Like Goldman Sacks downgrading the stock to a Neutral from Buy.

J.C. Penny (NYSE: JCP), the department store operator, tumbled 5.76% to $20.76, posting a new 52-week low of $20.58 after the company announced layoffs at its Plano, Texas headquarters, saying that with these 350 job cuts it completes its restructuring.