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| Bloomberg (Photo credit: Thomas Dimson) |
All 10 groups in the S&P 500 fell at least 0.8 percent for the week. DuPont tumbled 8.4 percent after saying it will eliminate about 1,500 jobs amid a smaller-than-estimated profit. 3M plunged 5.3 percent as it reduced its full-year projection. Monster Beverage Corp. (MNST) slid 14 percent after U.S. regulators confirmed reports that the company’s energy drinks were cited in five deaths. Yahoo! Inc. (YHOO) rose 6 percent after Chief Executive Officer Marissa Mayeroutlined her turnaround strategy.
The S&P 500 slid 1.5 percent to 1,411.94 for the week. The benchmark gauge for U.S. equities has retreated 2 percent in October, indicating it will end four straight months of gains. The Dow Jones Industrial Average lost 236.3 points, or 1.8 percent, to 13,107.21.
“Companies are reporting their third quarter, and relative to expectations, there have been weaker earnings and especially weaker sales,” Jason Benowitz, who helps manage $5 billion at Roosevelt Investment Group Inc. in New York, said in a telephone interview. “That’s reflective of the weak global economic environment, especially internationally.”
Of the 273 S&P 500 companies that have reported quarterly earnings results, about 59 percent missed analysts’ estimates for sales, according to data compiled by Bloomberg. Almost 72 percent topped projections for earnings, the data show. Concern about a worsening picture for corporate results has sent the S&P 500 down 3.7 percent from this year’s high on Sept. 14. The index is still up 12 percent in 2012.
Modest Growth
Equities fell as the Federal Reserve said the economy is still growing modestly and unemployment remains elevated as the central bank maintains $40 billion in monthly purchases of mortgage-backed securities. Outside the U.S., a survey showed a contraction in China’s manufacturing is easing and investors speculated the Bank of Japan will expand monetary stimulus next week.
Investors are also watching the U.S. presidential race. The latest Washington Post/ABC News tracking poll showed Republican Mitt Romney with 49 percent support among likely voters and President Barack Obama with 48 percent support, a result within the survey’s three percentage point margin of error.
Election Watch
“Active investors have pulled some chips off the table,” John De Clue, the Minneapolis-based global investment strategist at U.S. Bank Wealth Management, which oversees $113 billion, said by phone. “They’re in more of a wait-and-see mode on the election and what happens after the election.”
Investors sold shares of companies most tied to economic growth this week. Raw-material producers fell the most out of 10 groups in the S&P 500, losing 2.8 percent. Energy stocks slumped 2.4 percent for the second-largest drop. The Morgan Stanley Cyclical Index (CYC), a gauge of 30 U.S. stocks, erased 1.1 percent.
An S&P index of 11 homebuilders slumped 3.7 percent after a disappointing report on pending home resales.
DuPont tumbled 8.4 percent to $45.18 for the biggest loss in the Dow. Chairman and Chief Executive Officer Ellen Kullman plans to save $450 million with the job cuts and other actions as a weak global economy challenges her 12 percent profit-growth target. The most valuable U.S. chemical maker also cut its forecast for the year on declining demand for paint pigment and solar cells.
Scotch Tape
3M plunged 5.3 percent, the most since November, to $88.03. The manufacturer of products including Scotch tape and dental braces reduced its full-year forecast as a recession in Europe and slowing Asia growth crimped sales, missing analysts’ third- quarter revenue predictions. Facing slowing demand, Chief Executive Officer Inge Thulin has raised prices and kept costs in check to boost profit.
Boeing Co. (BA) retreated 3.9 percent to $71.11. The planemaker said it expects challenges next year that include a tougher defense market and higher pension expense. The defense unit, which accounted for 40 percent of total sales last year, is bracing for cuts in Pentagon spending, according to the Chicago- based company. The projected $3.5 billion in pension expense next year will be about $1 billion more than this year’s.
Monster Beverage
Monster Beverage tumbled 14 percent to $45.86. The company’s energy drinks have been cited in the deaths of five people in the past year, according to incident reports that doctors and companies submit to the U.S. Food and Drug Administration. The FDA said the incidents are considered to be allegations, and no conclusion is drawn until an investigation is completed.
Goldman Sachs Group Inc. removed Monster Beverage from its conviction buy list and Citigroup Inc. said the argument for a takeover has “evaporated.”
Apple Inc. (AAPL) slid 1 percent to $604. The maker of iPads and iPhones forecast profit and sales that missed analysts’ predictions as Chief Executive Officer Tim Cook boosts spending to revamp the company’s line and get new products in stores by year-end holidays. Earlier in the week, Cook introduced a smaller, cheaper version of the iPad, designed to keep customers from buying low-cost tablets from competitors. Apple has soared 49 percent this year.
Procter & Gamble Co. (PG) climbed 1.3 percent to $69.44 for the second-biggest gain in the Dow. The largest consumer-products maker reported first-quarter adjusted earnings that topped analysts’ estimates as the Cincinnati-based company slowed market-share losses and reduced manufacturing costs.
Turnaround Strategy
Yahoo rose 6 percent to $16.79, the highest level since May 2011. The largest U.S. Web portal reported third-quarter earnings that exceeded the average analyst estimate by nine cents a share. Mayer outlined her turnaround strategy, emphasizing mobile technology and personalized services, on her first call with analysts since being named CEO in July.
Facebook Inc. (FB) surged 15 percent to $21.94. The biggest social networking site posted sales that topped analysts’ estimates, allaying concerns over its ability to make money from mobile ads. Chief Executive Officer Mark Zuckerberg is showing early success with the more than half-dozen services unveiled since March that are designed to help businesses woo social- network users on tablets and smartphones.
Gamco Investors Inc.’s Howard Ward said he is fully invested in equities and sees the S&P 500 surpassing 1,500 in the next year, helped by a recovery in consumer spending and housing. He said the benchmark gauge for U.S. stocks was due to decline and investors should focus on earnings estimates for 2013 rather than short-term retreats.
“You should not be reactive to these impulses in the market that can really be in the hands of the high-frequency traders,” Ward, chief investment officer of growth equities at Gamco in Rye, New York, said in an Oct. 24 television interview on “Bloomberg Surveillance” with Tom Keene. His firm oversees $36 billion. “Ignore it. There’s a lot of noise. There were a lot of occasions in the last year where we had big swings in the market on any given day, only to see the market rally the next day.”
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