Benchmarks posted their fourth straight loss yesterday after
some companies lowered their profit guidance. The downward revision
of profit estimates further exposed the effects that global
financial woes are having on domestic firms. Markets did initially
react positively to news of Euro-zone finance officials agreeing to
provide Spanish banks with multi-billion euro financial aid.
However, the positive sentiment faded soon and the S&P 500
recorded its longest losing streak since May 18
th
.
The Dow Jones Industrial Average (DJI) was down 0.7% and closed
at 12,653.12. The Standard & Poor 500 (S&P 500) dropped
0.8% and finished yesterday's trading session at 1,341.47. The
tech-laden Nasdaq Composite Index inched down 1% and ended at
2,902.33. The fear-gauge CBOE Volatility Index (VIX) gained 4.1%
and settled at 18.72. Consolidated volumes on the New York Stock
Exchange, the Nasdaq and the American Stock Exchange were roughly
6.22 billion shares, lower than the year-to-date daily average of
6.85 billion shares. For every couple of stocks that declined on
the NYSE, one stock ended higher.
Initially, markets had opened higher and had a brief stay in the
positive zone. The domestic markets got a cue from European
markets' encouraging positive finish, which was powered by
euro-zone officials' decision to provide multi-billion euro aid to
Spanish banks. According to reports, Euro-zone finance officials
have agreed to provide Spain with financial aid worth €30 billion
by the end of this month.
However, markets lost their positive momentum soon enough and
were down for the fourth-consecutive day. Tuesday also marked
S&P 500's longest losing streak since May, when it suffered 6
consecutive days of decline. Cummins Inc. (NYSE:
CMI
) was the second-largest loser in the S&P 500 after it slumped
8.9%. The engine maker guided down its sales estimates and the move
weighed heavily on investor sentiment. Cummins had earlier
projected a 10% increase in full-year revenue. However, the company
now anticipates sales to remain flat compared with 2011 revenue
figures. Also, the company expects second-quarter sales to total
roughly $4.45 billion, which is significantly lower than Street
estimates.
The downward revision not only dented the company's shares but
also affected the industrial sector, which eventually dragged down
the broader markets. The Industrial Select Sector SPDR (XLI)
slumped 1.6% and companies including Caterpillar Inc. (NYSE:
CAT
), Deere & Company (NYSE:
DE
), Masco Corporation (NYSE:
MAS
) and Astec Industries, Inc. (NASDAQ:
ASTE
) lost 3.5%, 2.4%, 3.5% and 4.2%, respectively.
Cummins was not the only company which revised profit estimates
downwards as it was joined by a couple of tech firms. Applied
Materials, Inc. (NASDAQ:
AMAT
) now expects sales for the year-ending October to come in below
prior estimates of $9.1 billion to $9.5 billion. The company said
"demand changes" will negatively impact earnings by 15 cents to 20
cents. Applied Materials said "weaker than expected near-term
demand in its semiconductor equipment business, primarily among
foundry customers" was the factor that was affecting its
results.
Another tech firm, Advanced Micro Devices, Inc. (NYSE:
AMD
) also reduced its second-quarter revenue estimates. The chip maker
expects revenues to fall 11% sequentially. The announcement was a
big laggard on the company's shares which slumped 11.2%.
Both Cummins and AMD cited roughly similar reasons for their
downward revisions. Cummins' Chairman and Chief Executive Tom
Linebarger said: "Order trends in the U.S. for trucks and power
generation equipment have softened and demand in Brazil, China and
India is not improving as we had previously expected". Meanwhile,
AMD said: "Business conditions that materialized late in the second
quarter, specifically softer-than-expected channel sales in China
and Europe as well as a weaker consumer buying environment
impacting the company's business." Clearly, both companies believe
the slowdown in the global economy is responsible for their
woes.
These comments accelerated investors' apprehension about the
global economic situation. More importantly, markets were weighed
down by the fact that these global negative factors were denting
corporate profits. After the markets closed on Monday, Alcoa Inc.
(NYSE:
AA
), the world's largest producer of aluminum, reported a second
quarter loss. The company's shares lost 4.1% yesterday.
APPLD MATLS INC (AMAT): Free Stock Analysis
Report
ADV MICRO DEV (AMD): Free Stock Analysis Report
ASTEC INDS INC (ASTE): Free Stock Analysis
Report
CATERPILLAR INC (CAT): Free Stock Analysis
Report
CUMMINS INC (CMI): Free Stock Analysis Report
DEERE & CO (DE): Free Stock Analysis Report
MASCO (MAS): Free Stock Analysis Report
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