Stocks Slammed by Rocky Start to Earnings Season


NEW YORK ( TheStreet) -- The major U.S. equity averages finished sharply lower on Wednesday as the early results for third-quarter reporting season exacerbated investor worries about a slowing global economy.

Energy stocks were especially weak after oil giant Chevron ( CVX) gave a gloomy financial update, and Alcoa ( AA) was a significant drag as well after the company delivered a surprise quarterly profit but moderated its global aluminum demand forecast.

"Today has been pretty emblematic of what we've been seeing in the marketplace where we're dealing with two forces that are pushing against each other," said Leo Kelly, managing director at Hightower. "On one side we have really a questionable earnings period ... and Europe's still not out of the woods, Spain's pushing back on the ECB in terms of the timing of their bailout. On the other side you have QE3 and just an astounding amount of liquidity washing through the market that was already awash in liquidity."

" W e're definitely looking at tech, energy, materials, some of these more cyclical areas. Those are really going to tell us what is the impact of the global slowdown on the markets," said Kelly.

The Dow Jones Industrial Average fell nearly 129 points, or 0.95%, to close at 13,345, its lowest finish since Sept. 12, the day before the Federal Reserve announced a third round of quantitative easing.

Breadth was negative with losers far outpacing winners, 25 to 4, with Bank of America ( BAC) finishing flat. Aside from Alcoa and Chevron, the biggest Dow decliners were Caterpillar ( CAT), Cisco ( CSCO), and Hewlett-Packard ( HPQ).

The top gainers were Wal-Mart Stores ( WMT), McDonald's ( MCD) and JPMorgan Chase ( JPM).

Chevron shares slumped 4.2% after the company said third-quarter earnings would be "substantially lower" than in the second quarter as oil production declined in the first two months of the quarter and it received a lower price from the sale of oil.

The oil giant said production took a hit from a fire at its refinery in Richmond, Calif., and disruptions from Hurricane Isaac.

Aluminum producer Alcoa -- the first Dow component to report each quarter -- kicked off the unofficial start of the third-quarter earnings season Tuesday with a surprise profit, helped by productivity improvements and strong sales.

At the same time the company moderated its 2012 global aluminum demand forecast to 6%, down from 7%, as a slowdown in China slightly impacted its second half outlook. The stock closed down 4.6%.

Home Depot ( HD) was weak after Oppenheimer downgraded the stock on valuation concerns. Shares dropped 2%.

Wal-Mart shares got a 1.7% boost after the world's largest retailer said it's testing same-day delivery for goods purchased online, presenting a threat Amazon's ( AMZN) online business model. Amazon's stock fell 2.4%.

The S&P 500 lost nearly 9 points, or 0.62%, to settle at 1433, while the Nasdaq slumped more than 13 points, or 0.43%, to finish at 3052.

Both indices are also back at pre-QE3 levels. The S&P 500 and Nasdaq have each fallen in four straight sessions. The Nasdaq is now off 4.5% since hitting its intraday 52-week high of 3196.93 on Sept. 21.

In addition to energy, the weakest sectors in the broad market, which was completely in the red, were health care, consumer cyclicals, capital goods, technology and basic materials.

Breadth was solidly negative on both the New York Stock Exchange and Nasdaq. Volume totaled 3.22 billion on the Big Board and 1.79 billion on the Nasdaq.

The Federal Reserve released its Beige Book survey, finding that economic activity "generally expanded modestly" since its last report.

"The New York District noted a leveling off in economic activity, and Kansas City indicated some slowing in the pace of growth," the report said. "In general, other Districts reported that growth continued at a modest pace."

Earlier, the Census Bureau released wholesale inventories data showing an as-expected rise of 0.5% in August after a downwardly-revised 0.6% increase in July.

The FTSE 100 in London finished down 0.58% and the DAX in Germany slumped by 0.41% Wednesday. The International Monetary Fund warned that if European leaders failed to carry out decisive policy measures urgently, the pressure on European banks could result in asset shrinkage by as much as $2.8 trillion to $4.5 trillion through the end of next year.

The Nikkei Average in Tokyo closed down 1.98% and the Hang Seng in Hong Kong settled off 0.08% as wholesale auto deliveries in China shrank for the first time in eight months in September as escalating territorial tensions between Japan and China led consumers to refrain from purchasing vehicles manufactured by Japanese automakers Toyota ( TM) and Nissan ( NSANY).

November crude oil futures surrendered $1.14 to settle at $91.25 a barrel. December gold futures added a dime to close at $1,765.10 an ounce.

The benchmark 10-year Treasury rose 12/32, diluting the yield to 1.678%. The dollar was up 0.02%, according to the dollar index.

In the latest earnings news, shares of Costco Wholesale ( COST) rose 1.8% after the warehouse retailer said its fiscal fourth-quarter net income rose 27% from last year and handily beat Wall Street's expectations.

Yum! Brands ( YUM), the restaurant operator whose brands include Pizza Hut, Taco Bell and KFC, lifted its outlook for the full year to adjusted earnings of at least $3.24 a share after beating analysts' expectations in the third quarter. The stock surged 8%.

In other corporate news, Japanese automaker Toyota ( TM) will recall 7.43 million vehicles globally including in the U.S., Japan and Europe for a faulty power-window switch. Toyota ADRs were down 2.1%.

H&R Block ( HRB) shares tumbled 5.4% after the tax preparation and banking services company said it may sell its bank division in reaction to changes stipulated by the Dodd-Frank regulations.

FedEx ( FDX) set a goal to improve profits by $1.7 billion over the next three years, largely by cutting costs at its underperforming express air division. Shares gained 5.2%.

Engine maker Cummins ( CMI ) reduced its full-year revenue estimate and said that it plans to slash its headcount by as much as 1,500 by the end of the year amid growing global economic uncertainties. The stock was off 3.4%.

Specialty materials and chemicals producer Ferro ( FOE ) slashed its third-quarter earnings outlook because of its weakening solar pastes and metal powders business. Shares plunged 24%.


--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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