The Dow Jones lost 243 points or 1.8 percent Oct. 23 on weak European markets and disappointing corporate earnings. On the heels of a down day in Europe, the Dow fell nearly 200 points within minutes of opening. As the day progressed, U.S. corporate earnings failed to lift markets.
Spain Regions Downgraded
Bond markets and stock markets in Europe were in the red across the board, as French consumer confidence disappointed, hitting the lowest level since August 2009. Markets were hoping for a sign of bottoming. The EURO STOXX 50 lost 2.1 percent to close at 2,478 points.
Spanish bonds particularly were under pressure, as Moody’s Investor Service downgraded five autonomous regions to below investment grade. The action affected Catalonia, Extremadura, Andalucia, Castilla-La Mancha and Murcia. In its rationale, Moody’s cited that the regions are facing high debt redemptions in the near future and have low cash reserves.
The central government has installed a fund to support struggling regions, but the $23.3 billion fund is already maxed out and cannot accommodate any further requests.
In addition, Spanish newspaper El Confidencial reported that the government told Brussels it would miss the 2012 deficit target of 6.3 percent of GDP. According to the report, the deficit will likely be 7.3 percent. This news sent Spanish bond yields up 13 basis points to close at 5.62 percent.
U.S. Earnings Largely Disappoint
Given the weak situation in Europe, markets gapped down at the open in New York. Traders were hoping for a recovery, but that recovery never came, as DuPont and 3M—among others—released disappointing earnings reports.
DuPont, a major chemical producer and component of the Dow Jones Industrials, missed consensus EPS estimates by a long shot. It reported EPS of $0.32 versus $0.46. Citigroup has a neutral rating on the company and called the results a “big miss.” The company also fell short of revenue estimates of $8.34 billion, only reporting a turnover of $7.34 billion.
And 3M, the maker of a host of personal and industrial products showed earnings per share of $1.65, which was in line with consensus estimates. But the company lowered its guidance of future earnings, which spooked markets. It now expects growth for the full year 2012 to be between 2 and 2.5 percent, instead of the 2 to 5 percent range projected during the previous quarter. The reduced high side of the range indicates that the company’s most pessimistic projections have come to fruition.
“Growth remains broadly under pressure, with Western Europe still down and weakness in general industrial and electronics markets. Incremental weakness this quarter seems to be coming from the U.S., with China sluggish, but stable,” says Barclays in a report.
According to JP Morgan, up until Oct. 23, only 52 percent of the companies beat estimates for earnings, and over 60 percent of the companies missed expectations for revenues, in what is being generally perceived as a lackluster earnings season.
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