Stocks head lower as weak revenues from Johnson & Johnson, IBM disappoint

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Stocks slump as revenues from IBM, J&J disappoint

NEW YORK — Stocks retreated Tuesday after IBM and Johnson & Johnson reported revenue that was lower than expected and that raised questions about the strength of the economic recovery.

The Dow Jones industrial average fell almost 80 points in midday trading, recovering some of its earlier losses. Other indexes also dropped.

The revenue misses were the latest sign of weakness in companies’ second-quarter earnings reports. Johnson & Johnson’s revenue missed expectations following drug recalls, and IBM Corp. said it signed fewer services contracts. Texas Instruments Inc.’s revenue came in line with forecasts but investors were hoping for better.

Leading investment bank Goldman Sachs Group Inc. also reported lower revenue as its trading business was curtailed by the financial markets’ difficult spring.

The revenue figures at some companies are making many traders pessimistic about the economic recovery.

“The focus is on revenue momentum,” said Alan Gayle, senior investment strategist for RidgeWorth Investments based in Richmond, Va. “Investors are looking to see if this yearlong reovery is leading to revenue growth. So when a big company like IBM backs away from market expectations, then suddenly investors start retrenching.”

A downbeat report on the housing sector didn’t help the market’s mood. The Commerce Department said home construction fell last month to the lowest level since October. The decline was mitigated by a 2.1 percent rise in building permit applications, an indicator of future activity.

The Dow fell 78.86, or 0.8 percent, to 10,075.57. The broader Standard & Poor’s 500 index fell 5.65, or 0.5 percent, to 1,065.60 and the Nasdaq composite index fell 19.48, or 0.9 percent, to 2,178.75.

Losing stocks narrowly outpaced advancers on the New York Stock Exchange, where volume came to 386 million shares.

Johnson & Johnson’s revenues came in flat, and below what analysts were expecting. The company said several recalls of popular nonprescription medicines kept its top line in check. J&J’s shares, a component of the Dow, fell $1.55 or 2.6 percent to $58.02.

For some companies, even matching expectations for revenues isn’t enough. Late Monday Texas Instruments reported revenues that came in line with estimates, but investors were disappointed that the company didn’t report results as robust as come of its competitors. TI’s shares slumped $1.13, or 4.4 percent, to $24.42.

IBM fell $4.95, or 3.8 percent, to $124.84.

Apple Inc. and Yahoo Inc. will report results after the closing bell.

Goldman Sachs’ results are being closely watched since investors are concerned about how much banks will be restricted from trading by new financial regulation reform. The bank’s net income after paying preferred stock dividends fell 83 percent to $453 million on lower trading revenue and a charge to settle civil fraud charges brought by the government.

Goldman fell 16 cents to $145.52.

Bond prices rose as investors opted for safer investments. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.93 percent from 2.96 percent late Monday.

Overseas, Britain’s FTSE 100 fell 0.2 percent, Germany’s DAX index fell 0.8 percent, and France’s CAC-40 fell 0.7 percent. Japan’s Nikkei stock average fell 1.2 percent.