Stocks Fall on Growth and Earnings Concern

Published on Wednesday, 10 October 2012 16:36 Written by Christopher Lynn

New York, October 10^th (TradersHuddle.com) – Stocks closed lower for the fourth straight session, with the Dow posting a triple digit loss, as global growth jitters and a lackluster start to a new earnings season weighed on sentiment. The Fed Beige Book noted improved conditions in housing, but still a mixed picture in manufacturing.

The Dow Jones Industrial Average tumbled 128.56 points, or 0.95%. The S&P 500 index slid 8.92 points, or 0.62%, while the NASDAQ dropped 13.24 points, or 0.43%.

The market started near the flat line after a new earnings season got under way as Alcoa reported its quarterly results, but quickly moved into negative territory. Overseas markets were under pressure, with Japan slumping 2% amid worries over global growth and concern over additional sales declines for automakers in China due to the increased anti-Japanese sentiment due to the territorial dispute between both countries.

In Europe markets closed lower amid ongoing worries over the debt crisis in the region, particularly after the IMF said that inaction exposed the region to capital flight, euro break up, and economic decline.

Shares remained under pressure after the Fed’s Beige Book cited widespread improvement in housing, which has helped increased economic activity in August. The report also cited that manufacturing conditions somewhat improved from, but still remained mixed.

All of the S&P 500 sectors ended in lower territory, with energy and materials slumping more than 1%, while industrials and healthcare also underperformed the other sectors. Financials, utilities, and consumer staples were among the best performing sectors for the day.

Alcoa (NYSE: AA) pressured the material sector and the Dow Jones Industrial Average, as shares tumbled 4.6% despite the aluminum producer beating earnings expectations. The stock was seeing pressure after it reaffirmed its long-term outlook that aluminum demand will double 2010 by 2020, while saying that demand in 2012 would drop 6%, citing weakening economic conditions in Europe and China.

Another underperformer in the sector was Cliffs Natural Resources (NYSE: CLF), slumping 2.7% in the session. Also, International Paper (NYSE: IP) gained 0.11% in the day after the company announced a 15% boost to its quarterly cash dividend.

Energy was the worst performer in the S&P 500 amid a drop in crude oil prices and after Chevron (NYSE: CVX) said in its interim report that third-quarter earnings are expected substantially lower than in the previous quarter. Shares of the second largest energy company in the U.S. plunged more than 4%, posting the second biggest percentage decline in the blue chip index. Rival Exxon Mobil (NYSE: XOM) slumped 1.2%. Refiners were the worst performers in the sector, with Valero (NYSE: VLO) plunging more than 6% to the bottom of the broad market index.

Consumer stocks benefited from better than expected results from Costco (NASDAQ: COST) and Yum! Brands (NYSE: YUM). Costco topped on both top and bottom line expectations, saying that total company sales climbed 5%, with domestic sales gaining 6% and international stores sales adding 2%. Costco gained nearly 2% in the day after posting a new all-time high at $104.43.

Yum Brands jumped more than 8%, posting the biggest percentage gains in the S&P 500 after the company topped consensus estimates, while rising its full year earnings forecast. The Pizza Hut, KFC, and Taco Bell restaurant chains owner and operator said that same store-sales climbed 6% in both the U.S. and China. Rival McDonald’s (NYSE: MCD) saw some upside, climbing 0.31%.

In the industrial sector it was a mixed bag. On one hand FedEx (NYSE: FDX) jumped more than 5%, posting the second best performance in the S&P 500, after the company announced plans to sharply reduced costs at its underperforming express airfreight and services divisions. And on the other one, Cummins (NYSE: CMI) tumbled more than 3% in the session after the engine maker cut its fiscal 2012 revenue guidance, citing weak demand. Additionally, Cummins announced that it plans 1,000 to 1,500 layoffs by the end of the year.

In the tech space, Apple (NASDAQ: AAPL) gained 0.80%%, rebounding from its recent correction, which has taken the stock below the key 50day moving average. Apple has been under pressure amid reports of worker unrest at its manufacturing partner Foxconn, and as reports suggest quality issues have impacted the iPhone 5 production in the most critical time just after launching in numerous countries around the world.

Elsewhere, social media was under pressure once again. Zynga (NASDAQ: ZNGA) lost more than 3% after Piper Jaffray downgraded the stock to a Neutral from Overweight. Meanwhile, Facebook (NASDAQ: FB) tumbled nearly 3%, closing below $20 per share, after Oppenheimer noted that September desktop usage decline accelerated in September versus the prior month, declining 20% on a year over year basis. Additionally, a Bloomberg report stated that the company fought the SEC to keep the transition to mobile risks hidden before the IPO.