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U.S. Stocks Fall Before Corporate Earnings Season Starts

By Rita Nazareth
January 08, 2013 4:36 PM EST 5 Comments
U.S. Stock-Index Futures Decline Before Earnings Season Starts
U.S. Stock-Index Futures Decline Before Earnings Season Starts

U.S. stocks fell, sending the Standard & Poor’s 500 Index down for a second straight day, as investors awaited the start of the corporate earnings season.

Yum! Brands Inc. (YUM), the owner of the Taco Bell and KFC fast- food chains, retreated 4.2 percent as same-store sales fell more than projected in China after a government probe into one of its former suppliers hurt demand. GameStop Corp. (GME), the world’s largest video-game retailer, tumbled 6.3 percent amid a narrower sales forecast. Alcoa Inc., the largest U.S. aluminum producer, rose 0.9 percent at 4:29 p.m. as sales beat estimates.

The S&P 500 fell 0.3 percent to 1,457.15 at 4 p.m. New York time. The Dow Jones Industrial Average lost 55.44 points, or 0.4 percent, to 13,328.85. About 6.2 billion shares changed hands on U.S. exchanges, in line with the three-month average.

“We’re waiting for earnings to come out,” said John Manley, who helps oversee about $212 billion as chief equity strategist for Wells Fargo Advantage Funds in New York. He spoke in a telephone interview. “Valuations are far from excessive. Yet we’ve had a strong rally very quickly. Now the market is adjusting.”

Stocks had the biggest gain in 13 months last week as lawmakers passed a bill averting spending cuts and tax increases known as the fiscal cliff. Fourth-quarter profits from S&P 500 companies probably increased 2.9 percent, according to analysts’ estimates compiled by Bloomberg. That would be the second- slowest quarterly growth since 2009, the data show.

Alcoa’s Results

Alcoa Inc. (AA), traditionally the first company in the Dow to report quarterly results, rose 0.9 percent to $9.18 after the close of regular trading. Sales fell to $5.9 billion from $5.99 billion, beating the $5.6 billion average of 11 estimates. Profit excluding a gain on the sale of a power plant and other one-time items was 6 cents a share, matching the average of 20 estimates compiled by Bloomberg.

Yum slid 4.2 percent to $65.04. KFC sales in China in the last two weeks of December had a “significant impact” from “adverse publicity associated with a government review of China poultry supply,” the company said yesterday. China same-store sales fell 6 percent in the fourth quarter, compared with a previous estimate for a decline of 4 percent.

GameStop dropped 6.3 percent to $23.19. The company, which in November said it would close 200 stores because of a “tough video game market,” said comparable-store sales for the fiscal year ending this month will fall between 7.5 percent and 9 percent. The company previously forecast sales to drop between 6 percent and 9 percent.

Boeing Slumps

Boeing Co. (BA) retreated 2.6 percent to $74.13 after being downgraded to hold from buy at BB&T Capital Markets by equity analyst Carter Leake. The shares tumbled 2 percent yesterday after a 787 Dreamliner operated by Japan Airlines Co. caught fire on the ground at Boston’s Logan International Airport.

Sears Holdings Corp. slumped 6.4 percent to $40.16. Lou D’Ambrosio is stepping down as chief executive officer and Chairman Edward Lampert will take over the job as the billionaire hedge fund manager works to revive the retailer.

The sudden departure of D’Ambrosio, 48, was prompted by family health matters, the Hoffman Estates, Illinois-based company said yesterday in a statement. Lampert, 50, will take over at the end of the company’s fiscal year on Feb. 2.

Genworth Financial Inc. slid 3.5 percent to $8.04. The insurer that brought on a new chief executive officer last week declined after Credit Suisse Group AG downgraded the company on risks from long-term care coverage.

Analysts’ Ratings

AutoZone Inc. (AZO) dropped 2.2 percent to $348.25. The Memphis, Tennessee-based auto-parts retailer was cut to underweight from equal weight by Morgan Stanley analyst David Gober, who said AutoZone is “likely not a great stock in 2013.”

Halliburton Co. retreated 1.3 percent to $36.19. The world’s largest provider of hydraulic-fracturing services was downgraded to neutral from overweight at JPMorgan Chase & Co.

Monsanto Co. (MON) added 2.7 percent to $98.50. The world’s biggest seed company posted first fiscal-quarter earnings that surpassed analysts’ estimates and boosted its full-year forecast as corn-seed sales climbed in Latin American and the U.S.

Occidental Petroleum Corp. gained 2.3 percent to $81.72. The largest onshore crude producer in the continental U.S. rose after reaching half its 2013 target for drilling cost cuts.

Celgene Corp. rallied 6.6 percent to $91.41. The world’s fourth-largest biotechnology company was raised to outperform from sector perform at RBC Capital Markets by equity analyst Michael Yee. The 12-month share-price estimate is $100.

The Chicago Board Options Exchange Volatility Index, known as the VIX, fell 1.2 percent to 13.62 in New York today. It tumbled 40 percent over the past six sessions, the biggest decline since November 2008.

Bull Market

The bull market in U.S. equities that began in 2009 may end this year, followed by a drop of as much as 30 percent in the S&P 500 by next year, according to technical analysts at UBS AG.

The S&P 500 may gain 7.4 percent to as high as 1,570 forming a top for the 116 percent rally from March 2009 in late summer this year, Michael Riesner and Marc Mueller in Zurich wrote in a report yesterday. A “cyclical” bear market will then follow, with the gauge dropping as low as 1,100 by 2014, they added. The measure fell 0.3 percent to 1,461.89 yesterday.

“The March 2009 cyclical bull market is moving into a mature stage and in this context, we see the S&P 500 and risk assets moving into a major top in 2013, followed by a new cyclical bear into 2014,” the analysts wrote in the note.

They said the benchmark gauge began a long-term bearish pattern in 2000 which, in turn, consisted of medium-term, or cyclical, ups and downs. One part of this was the increase from 2009, which is now looking to reverse based on a triangular pattern called the rising wedge forming on its price chart, the analysts said.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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