Earnings Drag the Dow Lower

October 19, 2007 12:05pm by

3_stooges
Despite fantabulous growth data from Google, several Dow stocks have cast a pall on the markets today, with the Dow off ~ 200 points as I type this. 3M, Honeywell and Caterpillar are leading the charge lower.

I have to find the source, but S&P has also reported that this will be the 1st quarter in 5 years that will see negative year-over-year earnings growth.

As we noted Tuesday morning, the option expiry gamma is also adding downwards pressure to indices, asn options traders hedge their exposure. (These moves typically reverse the next day).

Marketbeat observed:

It’s an earnings-driven breakdown on the Dow Jones Industrial Average today, as three of the four components that reported prior to today’s opening were responsible for a good chunk of the losses on the 30-stock average in the morning . . .

Among those issuing clouded guidance was industrial equipment giant Caterpillar, which was down 3.5% % after the company missed expectations and lowered forthcoming guidance. Fellow components Honeywell and 3M are worse, falling 4.6% and 6.5%, respectively, as the latter said it would be slowing its pace of stock buybacks.

Combined, the three stocks account for 96 points of negative drag on the Dow, with 3M’s massive drop making up 50 points of that fall-off. The lone earnings reporter to buck the trend was McDonald’s, which was off fractionally, contributing little to the Dow’s move.

Ouch.

I’m ducking out to meet Prier du Plessis for lunch –be back soon . . .



>

Source:
The Dow’s Three Stooges
David Gaffen
Marketbeat, October 19, 2007, 10:55 am
http://blogs.wsj.com/marketbeat/2007/10/19/the-dows-three-stooges/

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What's been said:

Discussions found on the web:
  1. UrbanDigs commented on Oct 19

    Barry,

    I think another round of credit woes is the biggest reason why we are seeing this selloff. Look at the ABX markets since Oct 11th, that have been absolutely plunging! Im hearing BAD things from ex-traders, and hedge fund managers I keep in touch with from my trading daze (no, not a misspelling).

    Something is brewing under the surface and there is disintegrating interest in the RMBS markets; SIVs are becoming insolvent; FAS 157 deadline Nov 15th and failure to delay it will result in marketing to market (http://www.cfo.com/article.cfm/9985407/c_9975786?f=home_todayinfinance&x=1)

    Problems, Barry! And yes, earnings from Banks are sending a CLEAR message that credit woes will trickle to further quarters!

    The rally from rate cuts is over and the hangover is about to begin as the street wakes up to the reality of credit woes.

  2. UrbanDigs commented on Oct 19

    PS: I spoke about this on Tuesday!

    http://www.urbandigs.com/2007/10/has_the_hangover_begun.html

    “It was clear that equities were drunk on rate cuts, as I posted last week, and I think the street is yet to adapt fully to a world of credit restrictions, solvency issues, global inflation and higher rates. The first credit blip was an ‘awakening’ of sorts, and for those that think it’s completely over, well, stop hitting the snooze button!”

  4. VJ commented on Oct 19

    So much for the calls for a bottom in 2008:

    Mortgage Delinquency Risk Rising

    As housing markets deteriorated over the summer, and a liquidity squeeze buffeted credit markets, delinquencies and defaults jumped. And now one forecast predicts that these numbers will climb even higher. The Core Mortgage Risk Monitor (CMRM), an index of foreclosure risk compiled by First American CoreLogic, increased by 1.6 percent compared with the three months ended June 30.

    The index predicts the chances that future mortgage loan delinquencies will occur and is based on such factors as fraud propensity and collateral risk (the accuracy and sustainability of home prices paid), house price dynamics and the health of local market economies.

    Nationally, the index has settled into a level similar to what existed at the end of the last recession in 2001. And because the risk of default continued to rise for two years after that event, CoreLogic predicts the current risk index will keep going up for another 18 months or more.

    CNN LINK

    .

  5. Mr. Beach commented on Oct 19

    Reality has to be confronted with the mountain s of dollars leaking value in Asia and the petro States.

    Imagine, you’re a senior manager with the job of placing an ever increasing pile of $XXX Billion dollars.

    What do you buy?

    Do you buy the dips in American markets?

  6. zao commented on Oct 19

    The softening economy is impacting earnings growth? NO Way!
    Any company that dares to lower earnings forecasts will be bombed by B-52 Ben’s helicopters.

    It is all happening in super slow motion since last fall. Surreal…

  7. todd commented on Oct 19

    Mon Dieux! I thought Prier was going to be having lunch with me.

  8. tyoung commented on Oct 19

    Did Pier mention the rugby match this weekend? I hope the RSA kick some
    English arse tomorrow.

  9. tyoung commented on Oct 19

    Did Pier mention the rugby match this weekend? I hope the RSA kick some
    English arse tomorrow.

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