Corporate earnings failed to deliver any cheer to the markets on
Tuesday. These dismal results combined with concerns from across
the Atlantic dragged the domestic markets lower yet again. Germany
suffered a lowering of its rating outlook and reports suggested
that Greece will fail to pay off existing debt and needs to undergo
debt restructuring. The Dow registered its third-straight decline;
the first time since September last year.
The Dow Jones Industrial Average (DJI) suffered a decline of
104.14 points or 0.8% to close at 12,617.32. The Standard &
Poor 500 (S&P 500) dropped 0.9% to finish yesterday's trading
session at 1,338.31. The tech-laden Nasdaq Composite Index plunged
0.9% and ended at 2,862.99. The fear-gauge CBOE Volatility Index
(VIX) jumped 9.9% and settled at 20.47. Consolidated volumes on the
New York Stock Exchange, the American Stock Exchange and Nasdaq
were roughly 6.71 billion shares, just short of the year-to-date
daily average of 6.74 billion shares. Decliners far outpaced the
advancing stocks on the NYSE; as for 72% stocks that gained, 25%
finished in the green.
Coming to cross-Atlantic tensions, Moody's Investors Service
noted that lingering European debt troubles are a headwind for the
top-rated Euro-zone members and lowered Germany's rating outlook.
In its view, stronger nations like Germany have to bear the burden
of embattled nations such as Spain and Italy. According to Moody's:
"The continued deterioration in Spain and Italy's macroeconomic and
funding environment has increased the risk that they will require
some kind of external support". The ratings agency also said that
no country is 'immune' to the consequences of the debt woes.
Moody's lowered its rating on Germany from 'Stable' to
'negative'.
While Germany's rating outlook was lowered, hiking possibilities
of future ratings downgrades, the ratings agency said Greece faced
an "increased likelihood" of exiting the European Union. This,
according to Moody's "would set off a chain of financial sector
shocks that policymakers could only contain at a very high
cost".
The economic situation is not promising in Greece either, which
was further highlighted by a Reuters report which quoted a European
Union (EU) official as saying: "The situation just goes from bad to
worse, and with it the debt ratio". Three EU officials said Greece
might not be able to pay what it already owes and needs to
restructure its debt. The International Monetary Fund, European
Commission, and the European Central Bank, known the troika, have
reached Athens and is conducting a debt-sustainability analysis. An
official noted: "The debt-sustainability analysis will be pretty
terrible", while another official said: "Nothing has been done in
Greece for the past three or four months". Thus, European debt
fears were pretty evident and investor apprehensions were
justified.
Meanwhile, domestic corporate earnings results provided no
respite. One of the world's largest appliance makers Whirlpool
Corp. (NYSE:
WHR
) failed to beat the Street's estimates on both counts and
subsequently the company's shares lost 7.5%. Separately, lower
sales volumes across several segments resulted in a year-on-year
decline in earnings (including one-time items) for E. I. du Pont de
Nemours and Company's (NYSE:
DD
). The chemical and industrial products bellwether said
macro-economic tensions coupled with other factors compelled it to
expect that full-year 2012 adjusted earnings would come in at the
lower end of the earlier guidance range of $4.20 to $4.40 per share
(excluding special items). Shares of DuPont dropped 2.0%.
Another major concern for the markets was the earnings miss by
United Parcel Service, Inc. (NYSE:
UPS
). Considered to be an indicator for economic activity, not only
did United Parcel fail to match both top and bottom-line estimates,
but it also reduced its guidance. The European debt crisis and
lower Asian volumes were cited as the factors which are taking a
toll on the company's business, leading it to reduce fiscal 2012
adjusted earnings guidance to $4.50-$4.70 from earlier estimates of
$4.75-$5.00 per share. Shares of United Parcel declined 4.6%.
Among the sectors, the energy sector was severely impacted and
the Energy Select Sector SPDR (XLE) dropped 1.6%. Chevron
Corporation (NYSE:
CVX
), Marathon Oil Corporation (NYSE:
MRO
), Western Refining, Inc. (NYSE:
WNR
), Valero Energy Corporation (NYSE:
VLO
) and Marathon Petroleum Corp (NYSE:
MPC
) slumped 1.5%, 2.0%, 3.6%, 1.8% and 3.1%, respectively.
CHEVRON CORP (CVX): Free Stock Analysis Report
DU PONT (EI) DE (DD): Free Stock Analysis
Report
MARATHON PETROL (MPC): Free Stock Analysis
Report
MARATHON OIL CP (MRO): Free Stock Analysis
Report
UTD PARCEL SRVC (UPS): Free Stock Analysis
Report
VALERO ENERGY (VLO): Free Stock Analysis Report
WHIRLPOOL CORP (WHR): Free Stock Analysis
Report
WESTERN REFING (WNR): Free Stock Analysis
Report
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