Stocks drop after earnings reports

Remember when the market was peaking? Well, it seems that all that optimism on corporate performance was misplaced. Several companies have reported earnings that missed analysts estimates, prompting investors to pair back exposure to stocks.

Let’s start with the Wall Street Journal’s coverage of the market:

Technology and consumer stocks led the market’s decline following a basket of lackluster earnings reports.

The Dow Jones Industrial Average fell 63 points, or 0.4%, to 14559, in late trading Thursday. The Standard & Poor’s 500-stock index slid nine points, or 0.6%, to 1543, on pace for its lowest level since early March. The Nasdaq Composite Index sank 40 points, or 1.3%, to 3164.

Stocks have seen big swings this week, alternating between gains and losses, starting with Monday’s 266-point decline, the Dow’s biggest of the year. Tuesday’s rebound was nearly washed away by Wednesday’s 138-point drop for the blue chips.

Quarterly earnings reports from a host of major corporations set the tone of trading.

Through Thursday morning, first-quarter earnings growth for 82 of the S&P 500’s companies had declined 0.4%, according to FactSet, on pace to mark the second year-over-year decline in earnings in the past three quarters. Meanwhile, corporate revenue is expected to rise 3.2% in the first quarter, well below growth of 6% in the first quarter last year, according to S&P Capital IQ.

“The revenue side of the equation looks challenged on the whole,” said Bill Stone, chief investment strategist at PNC Asset Management Group. “That’s a testament, unfortunately, to a global economy that continues to struggle.”

Reuters decided that the declines were due to “weak economic data” and said it was the third day of losses:

Stocks fell on Thursday for the third day this week after data showed signs of slower growth ahead for the U.S. economy, while bearish technical signals added to doubts about the market’s strength.

Bloomberg led with earnings, but included the Philadelphia region manufacturing numbers, then returned with context about the quality of earnings this season.

Stocks kept losses after a measure of manufacturing in the Philadelphia region expanded at a slower pace and the index of U.S. leading indicators unexpectedly declined for the first time in seven months. The S&P 500 fell below its 50-day moving average for the first time this year. That level, currently at around 1543, is watched by some analysts to gauge the trend of the market.

Almost 30 companies in the S&P 500 were scheduled to post results today. Of the 82 that have reported since the season began, 74 percent have beaten analysts’ estimates for profit and 49 percent have exceeded sales forecasts, according to data compiled by Bloomberg. Analysts project first-quarter results dropped 1.4 percent, the first contraction since 2009.

The Chicago Board Options Exchange Volatility Index (VOL), or VIX, increased 4.9 percent to 17.31. The gauge briefly erased losses for the year after climbing as much as 10 percent. The VIX, which moves in the opposite direction to the S&P 500 about 80 percent of the time, reached a six-year low in March and has since risen 53 percent.

“When we were heading into this earnings season, the estimates had come down, but the S&P itself was still in a situation where sentiment was high and correcting,” Sam Turner, a fund manager with Richmond, Virginia-based Riverfront Investment Group LLC, said in the phone interview. His firm manages $3.7 billion. “That can play itself out with a consolidation.”

And for the international perspective, let’s look at the Financial Times, which said investors were worried about global growth prospects:

Equity and commodity markets in the US and Europe had a choppy time as investors struggled to shake off lingering concerns about the prospects for global economic growth.

Gold also experienced a fresh bout of volatility but managed to keep intact its recovery from a two-year low struck earlier this week. The yellow metal was up 0.8 per cent to $1,387 an ounce, although silver edged back slightly.

The latest economic reports out of the US did little to quell worries that a slowdown could be under way.

The Philadelphia Federal Reserve’s April survey of manufacturing activity weakened slightly while the index of leading indicators for March also fell. Meanwhile, initial jobless claims edged up slightly last week – the survey period for the Bureau of Labour Statistics’ April non-farm payrolls report.

“The spring and summer dips in economic activity that dominated 2011 and 2012 look to be repeating this year again,” said Steven Ricchiuto, chief economist at Mizuho Securities USA.

The data kept alive the sense of uncertainty in the markets prompted earlier in the week by unexpectedly weak Chinese GDP figures, some worrying numbers from Germany and the International Monetary Fund’s downgrade to its 2013 global growth forecasts. Indeed, Andrew Kenningham at Capital Economics argued that the IMF’s projections – while far from bullish – still looked too optimistic.

Either way, seems some of that investor optimism is heading out the door and money is being pulled out of the markets. No matter what you blame it on, it seems the stock market party might be over.