A glut of poor corporate earnings and warnings of reduced profitability next year overshadowed a further improvement in money markets and pushed US stocks lower.
The S&P 500 closed down 3.1 per cent at 955.05 on what was nevertheless a relatively calm day following last week’s near-unprecedented volatility. The Nasdaq Composite Index was 4.1 per cent lower at 1,696.68, while the Dow Jones Industrial Average was down 2.5 per cent at 9,033.66.
Downbeat figures from corporations in the industrial and technology as well as financial sectors demonstrated the toll that the credit crisis had already taken on profitability. Still, traders were more concerned by the generally downbeat mood among companies for the coming year.
The technology sector was the biggest drag on the market, down 5.6 per cent overall. Texas Instruments fell 6.3 per cent to $16.85 after it disclosed worse-than-expected results after the bell on Monday.
Sun Microsystems and Logitech sustained some of the heaviest losses, down 17.5 per cent to $4.77 and 15 per cent to $15.53, respectively, after updates indicated a downbeat outlook.
Apple and Yahoolost 7.1 per cent to $91.49 and 6.1 per cent to $12.07 ahead of results due after the bell.
Oracle was one of the few bright spots on plans for an $8bn share buyback but later fell back to stand 2.6 per cent lower at $17.69.
A drop in Freeport-McMoRan Copper & Gold profit, which lost 10.8 per cent at $32.74, also put downward pressure on materials, which stood 5.7 lower overall. AK Steel retreated 7.6 per cent to $13.96 after the group said prices would be down about 10 per cent towards the end of the year.
DuPont lost 8 per cent to $33.28 after the chemicals company cut its full-year forecast.
Lockheed Martin fell 9.7 per cent to $84.19 after the defence group reduced its guidance for next year on concerns of reduced military spending by the new administration.
Caterpillar fell 5 per cent to $38.87 after the manufacturer reiterated its 2008 forecast but predicted no rise in revenues next year.
However, some in the market downplayed the significance of earnings and argued developments in credit markets would remain centre stage
“Earnings are going to be some what meaningless [this quarter],” said Tom Sowanick, chief investment officer at Clearbrook Financial, who added that some signs in the credit markets were relatively reassuring.
The Federal Reserve yesterday launched a new facility to restore liquidity for money market mutual funds and rates for inter-bank lending eased further.
The regional banking sector, which stood 0.7 per cent higher, overcame a slew of grim results and was lifted into positive territory by plans to join the government’s $250bn recapitalisation scheme.
For example, Regions Financial gained 6.1 per cent to $11.29 even though its earnings from continuing operations fell 76 per cent in the third quarter missing analyst forecasts.
On the downside, Western Union sank 17.8 per cent to $16.75 after the group warned undershot Wall Street expectations and warned it could no longer forecast long-term profits.
American Express, after the closing bell on Monday, reported a sharp drop in third-quarter earnings that nonetheless beat analyst forecasts. The shares rallied 8.4 per cent to $26.39 yesterday.
Also bucking the downward trend, Pfizer was flat at $17.34 after the drug group’s results beat Wall Street’s expectations. 3M rose 4.4 per cent to $60.04, also on the back of well received figures.
Energy stocks were also hit as crude fell on fears of a global recession. The sector overall stood 4.3 per cent lower.
Meanwhile, Standard & Poor’s cut the expected 2008 dividend payment for the S&P 500 from $28.85 to $28.05, the lowest growth rate since 2001.
The Chicago Board Options Exchange Volatility index, known as Wall Street’s ”fear gauge”, rose 1.1 per cent. At 53.253, it continued to indicate heightened distress.
The fresh market decline came as it emerged that investor confidence plummeted last month, according to State Street research.