Last updated: June 20, 2012 5:56 pm

Wall Street falls after FOMC decision

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

Shares in Procter & Gamble , the world’s largest consumer goods maker by sales, slid 3.3 per cent to $60.12 after the company cut its earnings and revenue forecast for the second time in three months.

The owner of brands such as Gillette and Crest said sales were sluggish in its core markets while unfavourable exchange rates hurt profit margins.

P&G’s pessimistic view is in line with weak consumer sentiment in the US, which hit a six-month low in June as well as a slowdown in Europe and elsewhere in emerging markets. However, the multinational corporation that generates $80bn in products every year had over the past year disappointed shareholders with multiple organisational shortcomings.

The company has lost 9.8 per cent since the beginning of the year, shelving plans for a $4bn share buyback and focusing on maintaining its credit rating.

Ian Gordon, equity analyst at S&P Capital IQ, said: “Procter & Gamble is experiencing structural headwinds.” He added the company’s managerial expertise had been stretched by their recent expansion into new categories and emerging markets.

“They suffered from faster growth in low-margin businesses in emerging markets than their higher-margin businesses in North America and Europe,” he said.

Overall, US equity markets saw a volatile trading session. The main indices opened lower and fell to intraday lows immediately after the Federal Reserve announced that it would extend through to the end of the year its bond-purchasing programme Operation Twist , which disappointed investors who expected a more robust stimulus such as QE3.

Dan Greenhaus, chief global strategist at BTIG, said: “The Fed’s view of the economy clearly worsened with several minor but important language adjustments suggesting they are less than happy with the current rate of expansion.

”Ben Bernanke, Fed chairman, is scheduled to speak later and investors will be attuned for any hint that the central bank could unveil a new round of bond purchases, dubbed QE3, later this year.

After extending losses, stocks were moving towards being unchanged for the session ahead of Mr Bernanke’s press conference.

“We are disappointed with today’s statement for exactly the reasons we anticipated. The Fed view’s the economic expansion as lacklustre and has gotten more pessimistic on the prospects for growth,” said Mr Greenhaus.

The S&P 500 fell as much as 0.7 per cent before paring losses to close 0.2 per cent lower at 1,355.09.

The Dow Jones Industrial Average also fell initially to close 0.1 per cent lower at 12,824.39 while the tech-heavy Nasdaq Composite index closed fractionally higher to 2,930.45.

All 10 big S&P sectors were in negative territory after the Fed chairman Ben Bernanke gave a press conference but at the close, tech and financials were marginally higher.

Consumer staples, utilities and telecommunications led the losses.

Downbeat earnings forecasts from several large companies damped the mood further. Implied volatility as measured by CBOE’s Vix index, which had been falling steadily from high levels at the beginning of the month, see-sawed to close at 17.

In other corporate news, Walgreens shed another 2.9 per cent to $29.21 after dropping 5.9 per cent during the previous session. The US pharmacy chain announced on Tuesday that it would pay $6.7bn in cash and shares for a 45 per cent stake in Alliance Boots, the UK retail and wholesale pharmaceuticals group.

Deborah L Weinswig, equity analyst at Citi Investment Research, said: “While the transaction creates some global opportunities, we believe it does not resolve Walgreens’ issues in the US. We reiterate our ‘sell’ rating.”

Among financials, JPMorgan Chase shone, with its shares rallying 3 per cent to $36.45, fuelled by the news that the largest US bank is expected to make a 157 per cent profit from the sale of its stake in the London Metal Exchange.

Shares in American Express rose 0.9 per cent to $57.44, while Bank of America also added 1 per cent to $8.19.

PepsiCo downgraded its outlook, saying that unfavourable exchange rates would hurt 2012 profit more than previously expected. The company’s shares fell 0.4 per cent to $68.91.

In the technology sector, Adobe Systems , the graphic design software maker, forecast sales and profits which were below expectations. Its shares dropped 2.7 per cent to $31.99.

Stock in Cisco Systems rose 1.92 per cent to $17.51, Microsoft added 0.75 per cent to $30.93 and Hewlett-Packard ’s share price increased 1.3 per cent to $21.08.

JC Penney ’s shares, which tumbled during the previous session after the department store chain’s president abruptly left, rallied 4 per cent to $23.

The retailer has lost almost half of its market capitalisation since February of this year.

Scott Wren, senior equity strategist at Wells Fargo Advisors, said: “The large portion of the recent rally was due to a short squeeze, as traders rushed to cover their positions in the wake of rumours of further central bank stimulus, which sent equities higher.”

“We do not think that equities have been overbought as they are trading at their fair value levels at the moment.”

Shares in Bed Bath & Beyond dropped 10 per cent in after-market trading, as the housewares chain store gave a weaker than expected profit outlook for the current quarter.

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments


Sign up for email briefings to stay up to date on topics you are interested in

Enter job search