Apr

8

Wall Street tumbles as earnings season begins

Posted on: April 8, 2009 at 9:11 am | 85 views




NEW YORK: US stocks slid on Tuesday, hammered by fears that companies will show they struggled in the first quarter as the recession dragged on as the earnings season kicked off with Alcoa.

After the worst fourth-quarter earnings season on record, investors were expecting another round of poor profits, starting with aluminum producer Alcoa Inc after the closing bell.

Alcoa reported a second consecutive quarterly loss on falling demand and sharply lower prices. Its shares slipped 1.4% to $7.68 in extended trade, after initially rising following the results. Alcoa had closed down 1.5% in regular trade ahead of the results.

Earnings for S&P 500 companies are expected to fall by 36.9%, according to Thomson Reuters data. Analysts said they would be watching for comments from companies on outlooks for the rest of the year to see if the recent rally is sustainable.

“The key is going be what companies say about the future,” said Craig Hester, chief executive of Hester Capital Management in Austin, Texas. “I don’t think it’s going to be any surprise to people that the first-quarter earnings are going to be lousy.”

The Dow Jones industrial average fell 186.29 points, or 2.34%, to 7,789.56. The Standard & Poor’s 500 Index lost 19.93 points, or 2.39%, to 815.55. The Nasdaq Composite Index gave up 45.10 points, or 2.81%, at 1,561.61.

It was the second day of declines after stocks rallied off 12-year lows in the last month. Despite the declines, the S&P 500 is up more than 20% since hitting a bear market closing low in early March, on hopes the economic slump is moderating and banks are stabilizing.

Oil prices fell nearly $2 a barrel to below $50 a barrel as the market eyed another rise in crude inventories, taking energy stocks lower.

Chevron and Exxon Mobil were among the top drags on the Dow, with Chevron down 2.1% at $68.40, while Exxon Mobil dropped 1.9% to $68.71.

Shares in General Motors Corp fell nearly 12% to $2.00 after a source familiar with the company’s plans told Reuters the company was in “intense” and “earnest” preparations for a possible bankruptcy filing.

Investors are fearful of the spill-over effects a bankruptcy in the auto sector could have on the rest of the economy and other companies in the industry.

“Here’s one of the old icons of American industry that would find itself in bankruptcy,” said Hester. “One of the consequences of that is the multiplier effect in reverse on the economy and all the industries that that would impact, particularly the suppliers.”

Shares of auto supplier Lear Corp dropped 12.6% to 90 cents.

Also weighing on sentiment was a report that the International Monetary Fund was set to forecast toxic assets on the balance sheets of financial corporations could reach $4 trillion.

The KBW Bank index shed 3.5%, while JPMorgan Chase & Co was down 3.4% at $27.25.

Among laggards on the Nasdaq, big-cap tech companies fell, including Apple, which lost 2.9% to $115.00, and Research In Motion, down 6.3% at $59.95.

Trading was moderate on the New York Stock Exchange, with about 1.26 billion shares changing hands, below last year’s estimated daily average of 1.49 billion, while on Nasdaq, about 1.89 billion shares traded, below last year’s daily average of 2.28 billion.

Declining stocks outnumbered advancing ones on the NYSE by 2,368 to 647 while decliners beat advancers on the Nasdaq by about 2,033 to 649.

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