U.S. stocks retreated from the highest levels of the year as Microsoft Corp., American Express Co. and Amazon.com Inc. posted disappointing quarterly results, overshadowing reports showing Europe’s economy improved.
Microsoft fell 10 percent, the most since January, on lower profit and sales than analysts estimated. American Express slipped 3.7 percent after saying earnings decreased as the recession made it harder for cardholders to keep up with payments Amazon.com slumped 8.2 percent following price cuts that caused the online retailer’s revenue to miss projections.
The Standard & Poor’s 500 Index dropped 0.8 percent to 968.22 at 9:58 a.m. in New York after futures on the measure rose as much as 0.5 percent earlier. Dow Jones Industrial Average futures fell 47.24 points, or 0.5 percent, to 9,022.05. U.S. stocks surged yesterday, sending the Dow above 9,000 for the first time since January.
“At these levels in the market, there’s not a lot of room for error,” said Mark Freeman, who helps manage $7.5 billion at Westwood Management Corp. in Dallas. “Anything that deviates brings about a reevaluation by the market.”
Futures advanced earlier as Europe’s economy moved closer to recovery as the manufacturing and service industries contracted at the slowest rate since August and German business confidence climbed to a nine-month high. Later, the Reuters/University of Michigan index of U.S. consumer confidence was better than economists forecast.
Best Since 1992
Yesterday, the S&P 500 climbed to the highest level since President Barack Obama was elected on Nov. 4, advancing 2.3 percent to 976.29. The Dow gained 188.03 points, or 2.1 percent, to 9,069.29, the highest since one session after Election Day. The Nasdaq Composite Index surged 2.5 percent to 1,973.60 for a 12th straight advance, its longest winning streak since 1992.
“There is panic buying, even when earnings are not great you fear being left out of the rally,” said Francisco Salvador, head of institutional sales for continental Europe at broker Iberian Equities AV in Madrid. “It’s proving costly for those who are still short or outside the market.”
Microsoft, American Express and Amazon.com’s worse-than- estimated results followed two weeks of earnings reports that exceeded projections. Among S&P 500 companies that posted second-quarter results through yesterday, 74.1 percent beat the average analyst forecast, according to data compiled by Bloomberg. That would be the highest full-quarter figure on record, Bloomberg data going back to 1993 show. Three-hundred three S&P 500 companies have yet to report for the period.
Windows, Office
Microsoft fell 10 percent to $22.98. The biggest software maker reported a 29 percent drop in fiscal fourth-quarter earnings and posted sales that missed analysts’ estimates, a sign that demand for Windows and Office software is still declining. Per-share profit excluding some items was 36 cents, missing the average forecast by 2.4 percent.
American Express retreated 3.7 percent to $28.35. The credit-card issuer reported second-quarter sales of $6.09 billion, or 1.4 percent less than analysts projected. Net income from continuing operations decreased 48 percent to $342 million.
Amazon.com lost 8.2 percent to $86.15. The world’s largest Internet retailer has sought to ward off competitors by cutting prices and adding products, such as low-cost laptops and outdoor equipment. Its low prices and free-shipping offers have started to eat into profit, said Aaron Kessler, an analyst at Kaufman Brothers LP. Sales of $4.65 billion were 1 percent less than analysts estimated on average.
Home Sales Rise
Stocks advanced yesterday as EBay Inc., Ford Motor Co. and AT&T Inc. beat estimates and home resales increased more than forecast. D.R. Horton Inc. led all 13 stocks in an index of homebuilders higher as sales of existing homes increased for a third straight month.
The market is poised for more gains, according to followers of the century-old Dow Theory.
As the Dow Jones Industrial Average climbed to the highest level since Nov. 5 yesterday, the Dow Jones Transportation Average, a measure of airlines, shipping companies and railroads, broke through a May peak as it surged to the best level in six months. Dow Theory says that when the measures of industrial and transportation companies both post new highs, equities are likely to gain.
Source: Bloomberg.
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