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Stocks Slip as Investors Brace for Earnings Season

NEW YORK ( TheStreet) -- Major U.S. stock averages slipped for the second straight day on Tuesday as investors waited on the sidelines for the unofficial start of the earnings season with a report from aluminum giant Alcoa (AA) after the markets close.

The Dow Jones Industrial Average fell 55 points, or 0.41%, at 13,329. The blue-chip index posted its third day of losses in five sessions but remains up 3% since the start of the new year.

Breadth was slightly negative on the Dow, the laggards outnumbered gainers 15 to 14, while Alcoa closed unchanged. The biggest percentage blue-chip losers were AT&T (T), Verizon (V), UnitedHealth Group (UNH) and Boeing (BA).

Verizon shares were off 2.4% after CEO Lowell McAdam told The Wall Street Journal that he believes the company can feasibly buy out its wireless joint venture with Vodafone (VOD).

The winners included Exxon Mobil (XOM), Hewlett-Packard (HPQ) and Home Depot (HD).

Shares of Alcoa were up 1.2% in after hours trades after the aluminum products producer posted earnings of 6 cents a share on $5.9 billion in revenue and said it expected a bump up in global demand. Consensus among analysts had expected 6 cents a share on revenue of $5.61 billion.

The S&P 500 was down 5 points, or 0.32%, at 1457. The Nasdaq slid 7 points, or 0.23%, at 3092.

Except for health care and transportation, all sectors in the broad market were weakening, with capital goods, consumer cyclicals, conglomerates, and energy sinking the most.

Apple (AAPL) shares were off 027% as investors took profits following a pop in the stock amid a DigiTimes report that said the tech giant is developing a low-cost iPhone for emerging markets for 2013.

There were also reports that Apple CEO Tim Cook made his second visit to China in less than a year and met with the country's ministry of industry and information technology.

Volumes reached 3.59 billion shares on the New York Stock Exchange and 1.74 billion on the Nasdaq. Advancers were marginally ahead of decliners on the Big Board, while winners beat laggards by a 1.1-to-1 ratio and the Nasdaq.

Jeff Kleintop, chief market strategist for LPL Financial, said this week investors will begin to see whether fourth-quarter corporate profits suffered any collateral damage from the "fiscal cliff" battle.

"When the earnings season winds down in February, the fiscal cliff battle part II may emerge as we approach the limit on U.S. borrowing authority, the end of the delay to the spending sequester, and funding of the U.S. government," said Kleintop.

"Starting Tuesday afternoon, with Alcoa's Q4 earnings report, corporate fundamentals will start to matter again -- if only briefly," said Nicholas Colas, chief market strategist at ConvergEx. "U.S. companies have proven time and again over the last four years that they can deliver strong bottom-line results in spite of a tepid global economy. The market-moving information will, instead, be at the top of the income statement -- as it was during Q3 2012 season."

Colas' monthly review of analysts' revenue estimates for the companies of the Dow shows an expected rebound from the third quarter's negative 2% year-on-year change to positive 1.1%. On the downside, said Colas, that's what analysts thought last quarter, right before many large multinational corporations missed on the top line.

Thomson Reuters is expecting fourth-quarter earnings to grow 2.8% over the same period last year. Thomson Reuters said that of the 21 companies in the S&P 500 that have reported earnings to date for the fourth quarter 2012, 62% have reported earnings above analysts' expectations. This matches the long-term average of 62% and is lower than the average over the past four quarters of 65%.

Meanwhile, 67% of companies have reported fourth-quarter revenue above analyst expectations, according to Thomson Reuters. This is higher than the long-term average of 62% and higher than the average over the past four quarters of 50%.

The Federal Reserve reported that consumer credit increased by $16 billion in November versus a revised $14.1 billion in October. A consensus of analysts had expected an increase by $12.75 billion in November.

Gold for February delivery closed up Tuesday by $15.90 at $1,662.20 an ounce at the Comex division of the New York Mercantile Exchange, while February crude oil contracts finished down 4 cents at $93.15 a barrel.

The benchmark 10-year Treasury was up 11/32 to dilute the yield to 1.865%. The dollar was up 0.17%, according to the U.S. dollar index .

Overseas markets were weak as investors exercised caution ahead of the unofficial start of the fourth-quarter earnings season. The FTSE 100 in London finished down 0.18%, while the DAX in Germany settled off 0.48%. Hong Kong's Hang Seng closed down 0.94% and the Nikkei Average in Japan settled off 0.86%.

In corporate news, Yum Brands (YUM - Get Report) warned Monday that KFC sales in China would be slower because of a government review of its poultry.

Shares were tumbled 4.2%.

AIG's (AIG) board is meeting Wednesday to consider whether to join a $25 billion shareholder lawsuit against the government, court records show, The New York Times reported.

Shares were down 0.78% on Tuesday.

Seeds company Monsanto (MON) raised its full-year earnings guidance to $4.30 to $4.40 a share and full-year free cash flow guidance to $1.8 billion to $2 billion after it blew past first-quarter estimates.

Monsanto reported quarterly earnings of 62 cents a share on revenue of $2.94 billion, versus the average analyst expectation of 37 cents a share on revenue of $2.64 billion as it garnered strength from the continued expansion of its Latin American corn business, early momentum in its U.S. seeds and traits business and its agricultural productivity segment.

Shares jumped 2.7%.

Sears (SHLD) said late Monday that CEO Louis D'Ambrosio is stepping down for family health reasons; Chairman Edward Lampert will take over the CEO duties.

The U.S. retailer also said it expects a loss in the quarter ending Feb. 2 of $280 million to $360 million, or $2.64 to $3.40 a share. The period includes a charge of about $450 million related to pension settlements.

Shares slid 6.4%.

Chesapeake Energy (CHK) said it plans to significantly scale back its charitable, trade association and political spending for its cost-cutting program.

Shares fell 4.2%.

GameStop (GME - Get Report) shares dropped 6.3% after the video game retailer said it expects to report a fall in fourth-quarter same-store sales after a decline in store traffic during the holiday season.

Acuity Brands (AYI - Get Report) shares lost 5.1% after the lighting solutions company posted fiscal first-quarter earnings below analysts' estimates amid a decline in adjusted gross profit margin mainly attributable to an increase in input costs.

-- Written by Andrea Tse and Joe Deaux in New York.

>To contact the writer of this article, click here: Andrea Tse.

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