Rally on Wall Street fades on Europe fears
A stock market rally lost steam Wednesday after mixed earnings from U.S. companies added to fears about Europe’s economic slowdown.
Several big consumer goods companies warned that weak demand in Europe was cutting into their revenue. That followed worrisome economic news from England, France and Germany, where growth had offset recessions in other European countries like Italy and Greece.
Major U.S. stock indexes closed little changed. The Dow Jones industrial average finished up 7.04 points, or 0.1 percent, at 13,175.64. The Standard & Poor’s 500 index added 0.87 point, or 0.1 percent, to 1,402.22. The Nasdaq closed down 4.61 points, or 0.2 percent, at 3,011.25.
The Dow had risen 290 points over the previous three trading days. On Tuesday, the S&P 500 passed 1,400, and the Nasdaq composite closed above 3,000, both for the first time since early May.
As stocks in New York traded tentatively, the dollar rose against the euro, a sign that investors are becoming more fearful.
“It’s not unusual for the market to pull back a bit after a strong move, absorb the latest earnings news and look to see the next catalyst to move higher,” Quincy Krosby, market strategist with Prudential Financial, said.
The market is being held back in part by reports from consumer-goods companies that weak sales in Europe are hurting revenue, Krosby said. Consumer discretionary stocks fell the most among the 10 industry groups in the S&P 500.
McDonalds fell $1.48 to $87.53 after the company said a key revenue figure came in flat in July as the weakening global economy took a toll on customers of the world’s biggest burger chain. McDonalds was the weakest stock in the Dow.
Priceline.com fell more than $100 after warning investors late Tuesday that its third-quarter revenue and income would come in far below analysts’ forecasts because of the deepening malaise in Europe. Priceline’s stock sank $117.48, or 17.3 percent, to $562.32.
Priceline’s travails dragged on other online travel sites. TripAdvisor fell $1.89 to $36.77 and Expedia lost $2.73 to $56.14 percent. That made them three of the five biggest losers in the S&P 500 index.
Ralph Lauren fell $1.68 to $151.35 after the company forecast a revenue decline in the current quarter and cautioned that the weak global economy might reduce spending on its clothes and housewares.
“It’s no longer a theoretical argument that Europe is hampering earnings for American companies,” Krosby said. “It’s a reality, and you’re seeing that today.”
Earlier Wednesday, the Bank of England said it expects the country’s economy to stagnate this year. Only three months earlier, in its previous quarterly inflation report, the BOE had forecast annual growth of 0.8 percent.
Separately, the French central bank said it expects France’s economy to contract in the third quarter, the second pullback in a row.
Standard & Poor’s lowered its outlook on Greece’s long-term credit rating, saying the bailed-out nation will likely need more aid from its international lenders as its economy crumbles and leaders delay imposing harsh austerity measures.
And in Germany, industrial output and exports dropped sharply in June, a sign that Europe’s strongest economy might finally be succumbing to the regional crisis.
In other news:
BLOOMIN’ BRANDS: The operator of the Outback Steakhouse and other restaurant chains jumped $1.41, or 12.8 percent, to $12.41 in its first day of trading on the Nasdaq.
MACY’S: It rose $1.01, or 2.7 percent, to $38.01 after the department store chain said its net income in the second quarter rose 16 percent and beat analysts’ estimates.
ALPHA NATURAL RESOURCES: It fell 60 cents, or 8.7 percent, to $6.30 after reporting a wider net loss in the second quarter. The coal producer is struggling to compete with cheap natural gas.
DEAN FOODS: It soared $5.04, or 40.6 percent, to $17.46 after the company posted a second-quarter profit, raised its full-year forecast and announced the initial public offering of a dairy subsidiary that makes Horizon Organic milk and Land O’ Lakes butter. It was the biggest percentage gain by far of any stock in the S&P 500.
HP: Hewlett-Packard Co. says that it will take a massive charge against its earnings for the latest quarter to lower the value of its Enterprise Services business on its balance sheet and said the head of the division — the company’s second-largest — is leaving the company. Aside from the charges, its outlook was better than expected.
HIGHER ONE HOLDINGS: The financial services company serving millions of U.S. higher education students fell 38 cents to $11.13 after the company said its second-quarter net income declined and fell far short of analysts’ expectations. Federal regulators announced Wednesday that the company had agreed to refund millions in excessive fees charged to students who used its cards.
MORTGAGES: U.S. homeowners are getting better about keeping up with their mortgage payments, driving the percentage of borrowers who have fallen behind to a three-year low.
AMERICAN AIRLINES: Pilots for American Airlines expressed their anger with management by overwhelmingly rejecting the company’s final contract offer, but mechanics approved a contract by a razor-thin margin.
TOYOTA: Toyota’s top U.S. sales executive predicts that his company will add jobs and build more models in North America as a hedge against a strong yen.
A123 SYSTEMS: It says that while its operations continue to bleed cash, it has reached an agreement with a Chinese auto parts maker for an investment of up to $450 million that will help the struggling electric vehicle maker stay afloat.
NEWS CORP.: It posted a $1.55 billion loss in the fourth quarter after booking a large write-down on its publishing assets. The company’s $2.9 billion write-down was largely related to the declining value of its Australian newspapers.
LIBERTY MEDIA: It will spin off its Starz cable programming business. The Englewood, Colo., media conglomerate also says its second-quarter earnings climbed 75 percent to $156 million.