Stocks Fall on Mixed Earnings Reports
October 25 2016 - 10:32AM
Dow Jones News
By Jon Sindreu
U.S. stocks edged lower Tuesday as investors considered a mixed
batch of corporate earnings.
The Dow Jones Industrial Average fell 17 points, or 0.1%, to
18206. The S&P 500 declined 0.1%, and the Nasdaq Composite lost
less than 0.1%.
Markets have steadied this week amid better-than-expected
corporate earnings.
On Tuesday, consumer-goods company Procter & Gamble posted
an unexpected rise in profit and shares gained 4%. Under Armour
slid 14% after the athletic apparel maker, whose profits grew in
the third quarter, tempered its growth expectations going
forward.
U.S. investment manager BlackRock warned Tuesday that U.S.
earnings look better because analysts had previously lowered their
expectations.
"Early third-quarter earnings have beaten these reduced
expectations at a higher-than-average rate," said Richard Turnill,
BlackRock's chief investment strategist. "Yet fewer companies are
raising their future guidance than in a typical quarter."
Nevertheless, U.S. economic data for the third quarter, set to
be released Friday, is broadly forecast to show the world's biggest
economy growing at a faster pace.
Markets price in a 74% chance that interest rates will be higher
by December, according to CME Group.
As a result, the dollar has risen against other major currencies
this month. The WSJ Dollar Index, which measures the U.S. currency
against 16 others, rose 0.3% Tuesday.
The Stoxx Europe 600 fell 0.1%.
France's biggest phone carrier, Orange, gained roughly 5% after
reporting an increase in sales in the third quarter.
Meanwhile, shares in troubled Italian lender Banca Monte dei
Paschi di Siena were choppy as investors remained undecided about
its turnaround plan, which will include slashing 2,600 jobs and
shutting 500 branches. After rising more than 20% in the early
morning, the stock was recently down 17% -- but is still up roughly
50% over the past month.
Business confidence in the German manufacturing sector hit a
two-year high in October, according to data released Tuesday.
"Many of the uncertainties plaguing the eurozone economy may
have faded somewhat, but concerns about geopolitical risks,
instability in the financial sector and monetary policy are far
from likely to fade into the background permanently," said ING
analyst Bert Colijn.
On Thursday, U.K. officials will provide a glimpse at
post-Brexit Britain by releasing gross domestic product figures for
the third quarter. Economists expect households and businesses to
have shrugged off any immediate adverse effects stemming from the
U.K.'s vote to leave the European Union in June.
Strong data could lead markets to expect less monetary stimulus
from the Bank of England, which recently reignited its bond-buying
program -- known as quantitative easing, or QE.
For global investors, the question is whether to fully embrace
risky assets after years in which ultrasafe bonds have been the
star performers due to loose policies by central banks.
This month, bond yields have started creeping up, a tentative
sign that stronger economic growth -- and worries that central
banks have reached the limits of their powers -- may put an end to
the rally in fixed income. BlackRock has already warned that 2017
could be "a rough year" for bonds.
The yield on the 10-year Treasury note was recently at 1.768%,
according to Tradeweb, compared with 1.763% Monday.
Paul Griffiths, chief investor at First State Investments,
believes bonds remain globally overvalued, but stresses that they
can remain this way for years before they sell off.
"Whilst there is a steady level of QE happening across the world
the ability for bond yields to move in a sustained manner to more
normal levels is unlikely," he said.
Asian equity markets painted a mixed picture Tuesday, dragged
down by disappointing South Korean GDP data, which drove the Kospi
index down 0.5%. A weaker yen boosted Japan's Nikkei Stock Average,
which rose 0.8% and reached a six-month high.
Write to Jon Sindreu at jon.sindreu@wsj.com
(END) Dow Jones Newswires
October 25, 2016 10:17 ET (14:17 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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