Stock futures slip after disappointing earnings

August 3, 2010 8:26:42 AM PDT
Stock futures dipped Tuesday after a batch of mostly disappointing earnings took some excitement away from the big gains to start August.

Consumer products giant Procter & Gamble Co. and chemical maker Dow Chemical Co. both reported profit and revenue that fell short of forecasts. Those disappointments more than offset better-than-expected results from pharmaceutical company Pfizer Inc.

Investors could get a lift still from upcoming economic reports due out later Tuesday. Reports on personal income and spending, factory orders and pending home sales are all due out.

The mixed results took some luster off the market, which had rallied sharply Monday in the first day of trading in August. The Dow Jones industrial average jumped 208 points Monday after a report on July manufacturing showed growth in the sector slowed modestly, but not as fast as economists had expected. It was the best start to August trading since 1934.

Earnings had largely topped forecasts and companies were mostly upbeat about future growth in the past few weeks. However, Tuesday's results provided a rare piece of disappointment with two major companies falling short of forecasts.

The earnings results have drawn the attention of investors in a similar pattern that has been seen throughout the past couple of months. Trading has been erratic as investors receive conflicting signs about the pace of recovery. That has led to sharp swings higher and lower as investors focus on the latest piece of news to try and determine if or when the recovery will accelerate.

Ahead of the opening bell, Dow Jones industrial average futures fell 21, or 0.2 percent, to 10,596. Standard & Poor's 500 index futures fell 1.80, or 0.2 percent, to 1,120.00, while Nasdaq 100 index futures fell 0.25, or less than 0.1 percent, to 1,894.00.

Procter & Gamble, the maker of Tide and Pampers, saw its profit and revenue rise, but not enough to match expectations. Traders disappointed with the results sent its shares down $2.08, or 3.4 percent, to $59.98 in pre-opening trading.

Investors particularly want to see revenue beat expectations because that eases concerns that the economy is slowing down and companies need revenue growth to continue driving earnings higher. Economic reports have largely pointed to a slowdown in growth during the second half of the year, which could further impact corporate earnings.

Dow Chemical also missed earnings and revenue forecasts. Its shares dropped $1.03, or 3.6 percent, to $27.30. Pfizer's revenue and profit beat forecasts. That led investors to bid up its shares 37 cents, or 2.4 percent, to $15.85.

Earnings could take a back seat later in the day, when a report on personal income and spending is released. Economists polled by Thomson Reuters predict personal income and spending both rose in June, but at a slower pace than the previous month. That would fit the trend of economic reports indicating the economy continues to expand, but at a slower pace than earlier in the year.

Income likely rose 0.2 percent in June after climbing 0.4 percent in May. Spending likely rose 0.1 percent after a 0.2 percent rise a month earlier. Consumer spending accounts for a large portion of economic activity, so growth in personal spending is considered vital to a strong recovery.

The Commerce Department report is due out at 8:30 a.m. EDT.

Factory orders likely fell in June, but not by as much as in May. Economists expect factory orders dropped 0.5 percent in May. The results come a day after a broader manufacturing survey showed expansion in the sector in July. The report is due out at 10 a.m. EDT.

Also, the National Association of Realtors is expected to report the number of people who signed contracts to purchase homes inched higher in June, but remains at very weak levels. The group's index of pending home sales likely rose to 78.1 from 77.6 in May. The report is due out at 10 a.m. EDT.

Like consumer spending, the housing market is also considered a key component for the recovery. A collapse in the market helped push the country into recession and after a home buyer tax credit expired at the end of April, sales have again plummeted. Signs of growth aren't expected. Instead more modest indicators like stabilization would likely be welcomed in the market.

Many housing reports indicated sales dropped to near record low levels just after the expiration of the tax credit.

With investors taking a more cautious approach to trading Tuesday, bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.92 percent from 2.97 percent late Monday.

Overseas, Britain's FTSE 100 fell 0.4 percent, Germany's DAX index fell 0.1 percent, and France's CAC-40 fell 0.4 percent. Japan's Nikkei stock average rose 1.3 percent.


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