Stocks Continue to Decline; Banks Rise
Stocks traded lower Tuesday, led by a plunge in energy and technology stocks, as the dollar rose and traders shrugged off decent earnings results from several companies.
TheDow Jones Industrial Average fell more than 110 points. IBM , Microsoft and Alcoa led the decline, while American Express rose.
The S&P 500 Index and the Nasdaq also sank. TheCBOE Volatility Index, widely considered the best gauge of fear in the market, rose above 20.
All the major S&P 500 sectors fell, led by energy, materials and technology. The financial sector, however, rose as worries over how the foreclosure crisis would affect banks eased.
Earlier Tuesday, Atlanta Federal Reserve President Dennis Lockhart said on CNBC that he favors quantitative easing — or increasing the nation's monetary supply by buying long-term securities — and said the amount of asset purchases needs to be significant to make a difference.
"It doesn't make sense to do a small portion of QE," Lockhart said. "It has to be enough to make a difference. Something along the lines of $100 billion a month would be in range."
Stocks were being rattled by the dollar, which rose against a basket of currencies after The People's Bank of China said it wouldraise interest rates for the first time in three years to curb domestic inflation. China plans to raise its benchmark one-year lending and deposit rate by 25 basis points.
The rising dollar also hurt gold, which was heading for its biggest one-day fall since July. Gold futuresfor December delivery fell about $31.
While strong earnings were reported before trading Tuesday, investors remained focused on results from IBM, which disappointed with its tech services business, and Apple, which had slower sales of iPads than expected.
S&P Equity Research downgraded IBM to "buy" from "strong buy," saying earnings came in below the research firm's estimates. S&P lowered its 2010 estimate to $11.45 a share from $11.50 a share and maintained its estimate of $12.60 for 2011. Several brokerages, however, raised their price targets for the tech giant.
IBM, however, has contributed 13 percent to the Dow's gainssince late August, more than any other component of the blue-chip index.
Several brokerages also raised their price target for Apple, which was still trading above $300 a share.
Bank of America reported earningsper share of 27 cents for the third quarter, excluding a goodwill charge. Shares are slightly lower in the pre-market. Analysts in a Thomson Reuters poll had forecast 16 cents a share. The group reported a loss of 26 cents a share for the same period last year.
Revenue came in at $26.98 billion, falling just short of analyst forecasts, and the group's net loss quadrupled year-on-year because of a previously announced $10.4 billion goodwill charge for its card business. Bank of America shares were down almost 1 percent just after the news, but reversed losses later in pre-market trade.
Goldman Sachs reported earnings and revenue resultsthat were better than expected thanks to net revenue gains from its investment banking business. Earnings were $2.98 a share on net revenue of $8.9 billion.
Meanwhile, custody banks Bank of NY Mellon and State Street , released better-than-expected resultsfor the third quarter on earnings from managing client funds.
Citigroup's earnings lifted bank stocks on Monday after the bank reported third-quarter figures which beat analyst expectations, although shares traded lower on Tuesday.
Some investors remain concerned that errors made in foreclosure processes could lead to significant costs for the banking industry.
Capital One's shares, meanwhile, jumped to lead the S&P 500 after reporting a doubling in third-quarter profits as loan-loss provisions dropped from last year.
Dow components Coca Cola reported strong third-quarter earnings of 92 cents a share, against an expected 89 cents a share and Johnson & Johnson beat expectationswith a 2 percent gain in profit on lower sales of $14.98 billion.
The energy sector slumped asoil prices fell due to the rising dollar.
Occidental Petroleum slid despite reporting a 28 percent jump in third-quarter earnings, beating expectations, due to a rise in commodity prices and strong production levels.
But shares of Massey Energy soared to among stocks leading the S&P 500 Tuesday after a report in the Wall Street Journal that directors of the coal company are considering alternatives, including a sale of the company.
Parker Hannifin shares rose after reporting a tripling in profits. The industrial control system company also raised its earnings forecast for the full year, and said demand is up across its markets.
Shares of Lockheed Martin , meanwhile, slumped after the defense contractor posted lower-than-expected results, and lowered its forecast for 2010.
Also falling were shares of Harley Davidson , which reported strong third-quarter earnings, but said sales of motorcycles slipped. CEO Keith Wandell said the "economy has yet to turn around in a convincing way and many consumers remain on the sidelines," according to Reuters.
Yahoo will release quarterly numbers after the close.
Shares of mining companies were mixed after UBS downgraded ratings for Lundin Mining , Equinox and ThompsonCreekMetals . The brokerage raised its price target for Alcoa to $14.50 from $13.25.
Shares of Abercrombie & Fitch fell more than 3 percent after Brean Murray Carret cut the teen retailer to "sell" from "hold."
In economic news, the Commerce Department reported a surprising rise in housing starts, but a sharp decline in permits for future home construction. U.S. housing starts rose 0.3 percentto a five-month high of 610,000 units, better than the 580,000-unit rate expected by analysts polled by Reuters. Permits for new construction fell 5.6 percent to a 539,000 unit pace, instead of the expected 580,000-unit pace, due to a decline in multi-family units.
European markets gained in morning trade on Tuesday, with financial stocks among the sharpest risers ahead of the earnings due to be released by their U.S. peers.
On the Calendar Next Week:
TUESDAY: Grant's Conference, CFTC Open Meeting on Dodd-Frank; Chicago Fed President Evans speaks; after-the-bell earnings from Yahoo, Sallie Mae and Western Digital.
WEDNESDAY: Mortgage applications, oil inventories, Beige book; Apple Mac Event, Richmond Fed. President Lacker speaks, Philadelphia Fed President Plosser speaks; before-the-bell earnings from Abbott Labs, Boeing, BlackRock, Morgan Stanley, United Technologies, Wells Fargo, M&T Bank, US Airways; after-the-bell earnings from eBay, E*Trade, Netflix and Seagate Technologies.
THURSDAY: ECB Meeting, jobless claims, leading indicators, natural gas inventories, money supply, Kansas City Fed President Hoenig speaks, CBO Director Elmendorf speaks; before-the-bell earnings from AT&T, Caterpillar, Credit Suisse, Eli Lilly, Novartis, Travelers, UPS, Continental Airlines, PNC Bank, Southwest Airlines, and Xerox; after-the-bell earnings from American Express and Amazon.
FRIDAY: G20 Finance Ministers & Central Bank Governor's Meeting; before-the-bell earnings from Verizon, Exelon, Ingersoll-Rand and Schlumberger.
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