Disappointing earnings results dragged down benchmarks on Tuesday to their biggest one-day losses in three weeks. Major market movers including Microsoft and Caterpillar reported dismal earnings reports that dented investor sentiment yesterday. Moreover, discouraging durable order report also had a negative impact on the markets.
For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street article
The Dow Jones Industrial Average (DJI) declined 1.7%, or 291.49 points, to close at 17,387.21. The Standard & Poor 500 (S&P 500) lost 1.3% to close at 2,029.55. The tech-laden Nasdaq Composite Index closed at 4,681.50; declining almost 2%. The fear-gauge CBOE Volatility Index (VIX) jumped 11% to settle at 17.22. A total of about 6.5 billion shares were traded on Tuesday, lower than month-to-date average of 7.2 billion. Decliners outpaced advancing stocks on the NYSE. For 54% stocks that declined, 42% advanced.
On Tuesday, shares of Microsoft Corporation (MSFT – Analyst Report) plunged 9.3% after reporting weak revenue in the software segment in second quarter 2015. Revenue from office consumer segment declined 25% year on year in the quarter. Also, both Windows OEM Pro and non-Pro revenue declined 13% year over year. Moreover, Microsoft’s gross margin of 61.7% was down 263 basis points (bps) sequentially and down 451 bps from the year-ago quarter. The tech giant blamed weakness in Asia, mainly in China and Japan, and strengthening of the dollar for this disappointing result. However, company’s quarterly earnings and revenue figures outpaced the Zacks Consensus Estimate.
Decline in Microsoft’s shares had a negative impact on the Technology Select Sector SPDR ETF (XLK). The sector declined almost 3% and was the worst performing sector among the S&P 500 sectors on Tuesday. Key technology stocks including Intel Corporation (INTC – Analyst Report), Apple Inc. (AAPL – Analyst Report), Google Inc. (GOOGL – Analyst Report) and Facebook, Inc. (FB – Analyst Report) lost 4.5%, 3.5%, 2.9% and 2.2%, respectively. Eight out of 10 S&P 500 sectors ended in the red.
Moreover, Caterpillar Inc.’s (CAT – Analyst Report) shares dropped 7.2% after reporting a 20% decline in its fourth-quarter 2014 adjusted earnings to $1.35 per share, also missing the Zacks Consensus Estimate of $1.55. Caterpillar’s quarterly revenues also declined 1% year over year to $14.2 billion in the quarter. It was reported that muted mining environment, and lower prices of oil and key mined commodities, particularly copper, coal and iron ore were major reasons behind this dismal report. Both Microsoft and Caterpillar were the biggest losers among the Dow and S&P 500 components.
Additionally, The Procter & Gamble Company (PG – Analyst Report) reported second-quarter fiscal 2015 adjusted earnings per share of $1.06, lagging the Zacks Consensus Estimate of $1.14. P&G’s net sales declined 4% to $20.16 billion in the quarter, also below the Zacks Consensus Estimate of $20.70 billion. Shares of Procter & Gamble declined 3.5% following the results. Also, shares of Pfizer Inc. (PFE – Analyst Report) decreased 0.6% after issuing disappointing guidance for 2015. Pfizer expects 2015 earnings of $2.00 – $2.10 per share on revenues of $44.5 billion – $46.5 billion.
On the economic front, the Commerce Department reported that durable orders declined 3.4% in December, in contrast to the consensus estimate of a 0.3% rise. Moreover, it was reported that durable orders witnessed a decline of 2.1%, compare to earlier reported figure of 0.9%.
However, the Conference Board reported that Consumer Confidence Index increased to 102.9 in January from December’s reading of 93.1, higher than the consensus estimate of 97. It was also the best level of the index since Aug 2007. Meanwhile, the U.S. Department of Commerce reported that new home sales gained 11.6% in December to a seasonally adjusted annual rate of 481,000, beating the consensus estimate of 453,000.
Encouraging new home sales number had a positive impact on the SPDR S&P Homebuilders (XHB). The sector gained nearly 0.2% and was the biggest gainer among the S&P 500 sectors on Tuesday. Key homebuilder stocks including Beazer Homes USA Inc. (BZH – Snapshot Report), Toll Brothers Inc. (TOL – Analyst Report) and Lennar Corp. (LEN – Analyst Report) rose 0.2%, 0.4% and 0.2%, respectively.
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