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Dow falls 128, with Chevron and Alcoa leading way
NEW YORK—Downbeat reports from Alcoa and Chevron at the start of corporate earnings season pulled stock indexes lower for a third straight day yesterday. The Dow Jones industrial average slumped 128 points, its steepest loss since late June.
Alcoa, the aluminium producer, beat Wall Street’s earnings estimates on Tuesday night but said it expects a slowdown in China to weaken demand for aluminum. Its stock fell 42 cents Wednesday to US$8.71. The company is often used as a weather vane for the global economy. “And judging by Alcoa’s massive inventory of aluminum, it seems pretty anemic,” said Jack Ablin, chief investment officer at Harris Private Bank.
Chevron, the second-largest US oil company, warned late Tuesday that slumping oil prices and production would cause earnings to be “substantially lower.” It blamed Hurricane Isaac for disrupting production at a Mississippi refinery. On Tuesday, the Supreme Court also refused to block a US$19 billion judgment levied against Chevron by an Ecuadorian court for polluting the Amazon. Chevron’s stock sank US$4.91 to US$112.45.
The Dow fell 128.56 points to close at 13,344.97, just shy of one per cent, its fourth straight drop and the largest point decline since June 25. Chevron alone pulled the Dow down 38 points. The Standard & Poor’s 500 index fell 8.92 points to 1,432.56.
Alcoa and Chevron’s results were an unpromising start to the third-quarter earnings parade, said JJ Kinahan, chief derivatives strategist at Ameritrade. “It’s beginning to look like we might have a lot of gloom-and-doom earnings calls this quarter,” he said.
Of the ten industry groups within the S&P 500, all but financials fell. Energy and materials stocks, whose fortunes hinge on economic growth, slumped the most. Bank stocks ended the day flat. In other trading, the Nasdaq lost 13.24 points to 3,051.78. The yield on the benchmark ten-year Treasury slipped to 1.68 per cent, down from 1.71 per cent late Tuesday.
In one of the few economic reports out Wednesday, the Federal Reserve said the US economy “expanded modestly” from mid-August through September. The survey, known as the Beige Book, pointed to improvements in housing car sales, manufacturing and the housing market. Employment and consumer spending, however, remained mostly flat.
Wal-Mart Stores surged US$1.28 to US$75.42, and earlier touched an all-time high of US$76.81. The president of its US division told Wall Street analysts that the retail giant plans to open more small-scale stores, including its Express chain, to compete with discount retailers and drugstore chains.
Alcoa’s earnings report marks the unofficial start to the quarterly earnings season, expected to be the worst in three years. Analysts project that companies in the S&P 500 will say third-quarter earnings shrank one per cent compared with the same quarter of last year.
Ablin said investors need solid reasons to buy stocks now, given the stock market’s strong run this year. “My sense is that, with these downbeat earnings announcements, there’s not much around right now,” he said. Concerns over the global economy helped knock the Dow down 110 points on Tuesday.
The International Monetary Fund trimmed its forecast for worldwide growth, saying that trouble in Europe and other developed regions has spread to faster-growing developing countries. The day before, the World Bank cut its estimate for growth in China, the world’s second-largest economy behind the US, and countries across Asia.
For the week, the Dow and S&P 500 have each lost 1.9 per cent, and the Nasdaq has lost 2.7 per cent. Among other companies making big moves Wednesday:
• Yum Brands jumped 8 per cent, the top stock in the S&P 500 index. The parent of Taco Bell, Pizza Hut and other fast-food chains said results from China stores should remain strong, even as the Chinese economy slows. Yum gained US$5.28 to US$70.99.
• FedEx gained five per cent, or US$4.41 to US$89.99. The world’s second-biggest package delivery company unveiled a restructuring plan Monday aimed at raising profits by US$1.7 billion within three years. FedEx promised to shed jobs and underused aircraft.
• Costco posted stronger sales and earnings than forecast as more people signed up to buy the company’s diapers and groceries in bulk. Costco’s stock gained US$1.92 to US$101.56.
• Toyota Motor Corp dropped US$1.56 to US$74.50 after the carmaker recalled a total of 7.4 million vehicles worldwide for a for a faulty power-window switch, the latest in a series of recalls for Toyota.
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