Stocks Selloff on Weak Earnings

Published on Friday, 19 October 2012 17:18 Written by Christopher Lynn

New York, October 19^th (TradersHuddle.com) – Stocks took a beating, logging their sharpest single session drop since June. A batch of key disappointing earnings spooked investors and highlighted the impacts of the global economic slowdown in corporate profits. Additionally, global headlines were not supportive, as Chinese direct foreign investment dipped in September and as the potential Spanish bailout still remains uncertain after the EU summit.

The Dow Jones Industrial Average slumped 205.43 points, or 1.52%. The S&P 500 index slid 24.15 points or 1.66%, while the NASDAQ tumbled 67.25 points, or 2.19%.

For the week, the Dow climbed 0.11%, while the S&P 500 gained 0.32% and the NASDAQ lost 1.26%.

The market started under pressure after a series of earnings disappointments from technology firms and other economic bellwethers like General Electric and McDonald’s. In overseas markets, Europe was under pressure after leaders wrapped their summit in Brussels with hopes the EU banking supervisor will be implemented in January 2013; however uncertainty over the likely Spanish bailout remained. Also weighing on the markets was a weaker than expected Chinese foreign direct investment figure.

Economic news was also unsupportive, with existing home sales dipping in September to a seasonally adjusted annual rate of 4.7 million units.

Participants sold positions throughout the session, with benchmark indices ending firmly in negative territory. The selloff was broad based with key S&P 500 sectors posting sharp declines and 29 of 30 Dow components falling in the session. Technology and materials were the worst performing sectors, tumbling more than 2%, while only the utilities sector logged a decline of less than 1%.

In the S&P 500, Advanced Micro Devices (NYSE: AMD) hit new multiyear lows slumping to the bottom of the S&P 500, followed by Chipotle Mexican Grill (NYSE: CMG) and E*Trade Financial (NASDAQ: ETFC).

Meanwhile in the Dow, McDonald’s (NYSE: MCD), General Electric (NYSE: GE) and Caterpillar (NYSE: CAT) lead the slump.

Advanced Micro Devices plunged 16.8% to $2.18, posting a new multiyear low of $2.17, after its quarterly results missed earnings expectations on revenue that was inline with consensus. The chipmaker issued downside revenue guidance for the fourth quarter, while announcing a new restructuring plan. The stock was downgraded to market perform at FBR Capital and Bernstein.

Chipotle slumped more than 15% after its earnings disappointed investors. The report met top line expectations but missed on the bottom line. The once highflying stock was unable to garner support despite the company announcing a boost of $100 million to its share buyback plan.

Meanwhile, McDonald’s, the fast food giant dropped 4.5% after its earnings missed expectations. The restaurant company actually reported revenue that was slightly above consensus. And General Electric, an economic bellwether, lost 3.4% to $22.03 after revenue fell shy of consensus. The conglomerate reported earnings that beat expectations, but investors were concerned over the outlook and the slowing revenue.

Also in tech land, Google (NASDAQ: GOOG) fell nearly 2%, seeing follow thru weakness to its 8% plunge in the prior session. The drop came after numerous brokerages cut their ratings and target prices following yesterday’s mistakenly prematurely released earnings report that widely missed expectations. Apple (NASDAQ: AAPL) tumbled 3.6% to $609.84, as now the stock seems primed to test its 200day moving average into the $500 level. Apple will be closely watch next week, as on Tuesday it’s expected to unveil the new iPad mini and on Thursday, the company is scheduled to release its quarterly results.

Microsoft (NASDAQ: MSFT) added to the funk, with the stock falling nearly 3%. The software publisher reported results that missed consensus, which pressured shares ahead of the Windows 8 release. Additionally, Barclays cut its price target on the stock to $34 from $36.

Some positive earnings, buckling the trend, came from Capital One (NYSE: COF) and Honeywell (NYSE: HON). The credit card issuer jumped 6% to post the biggest percentage gain in the S&P 500 after both profit and revenue topped consensus. Meanwhile, Honeywell gained 1.7% after better than expected results on the bottom line and despite revenue falling slightly shy of consensus.