Stocks head lower in early trade as revenues from Goldman Sachs and IBM disappoint
By Stephen Bernard, APTuesday, July 20, 2010
Stocks slump on weak revenues from Goldman, IBM
NEW YORK — Stocks are falling after revenues from Goldman Sachs and IBM came in lower than investors expected.
The miss from the leading investment bank early Tuesday was the latest sign of weakness in revenues in this corporate earnings season. Late Monday, IBM reported revenues that were also lower than expected.
A downbeat report on the housing sector didn’t help. 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 Jones industrial average fell 120.26, or 1.2 percent, to 10,034.17 in early trading. The broader Standard & Poor’s 500 index fell 11.90, or 1.1 percent, at 1,059.35 and the Nasdaq composite index fell 30.12, or 1.4 percent, to 2,168.11.
The results from Goldman Sachs reinforced investors’ concern that revenues are coming in unusually weak, a sign that the economic recovery isn’t as strong as hoped. Like IBM, Goldman also reported per-share earnings that beat estimates, but the market has been keying in on whether companies are delivering sustainable revenue growth.
IBM fell $6.40, or 4.9 percent, to $123.39, while Goldman fell $1.60, or 1.1 percent, to $144.08.
IBM’s revenue came in short of analysts’ forecasts because of a drop in the value of service contracts. It also said sluggish growth in Europe was affecting its revenue.
Stocks have been in a funk since late April as an increasing number of dark signs emerge about the broader economy. Investors have been hoping to find in second-quarter earnings results signals that the economic recovery may be stronger than the recently weak data have indicated.
For some companies, even matching expectations for revenues isn’t enough. Late Monday Texas Instruments Inc. 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 $1.28, or 5 percent, to $24.27.
Apple Inc. and Yahoo Inc. will also 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 fell 83 percent to $453 million on lower trading revenue and a charge to settle civil fraud charges brought by the government.
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 0.5 percent, Germany’s DAX index fell 1 percent, and France’s CAC-40 fell 1 percent. Japan’s Nikkei stock average fell 1.2 percent.
