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A day after the benchmarks had their best run in nearly a month, insipid results from two tech-bellwethers and European economic concerns dragged the markets lower on Wednesday. Incidentally, benchmarks’ robust performance on Tuesday was largely boosted by the same fronts, except that corporate results came in strong and Europe had positive news to share about. Unfortunately, IBM and Intel’s results failed to lift investors’ sentiment yesterday, and bad loans of Spanish banks reached to the highest level since 1994.
The Dow Jones Industrial Average (DJI) slumped 0.6% to close at 13,032.75. The Standard & Poor 500 (S&P 500) was down 0.4% and finished yesterday’s trading session at 1,385.14. The tech-laden Nasdaq Composite Index dropped 0.4% to sign off at 3,031.45. The fear-gauge CBOE Volatility Index (VIX) edged up by almost a percent to settle at 18.64. Consolidated volumes on the New York Stock Exchange, the American Stock Exchange and Nasdaq were roughly 5.95 billion shares, sharply lower than this year's daily average of 6.67 billion. The declining stocks outpaced the advancing ones on the NYSE; as for every two stocks that ended in the red zone, only one stock could manage to settle in the green.
Only seven of the 30 Dow components ended in the green zone with gains going only as high as 0.9%, which was attained by Hewlett-Packard Company (NYSE:HPQ). While it was HPQ who led the gainers, it was also the technology stocks that suffered the biggest losses among the remaining 23 Dow components. International Business Machines Corporation (NYSE:IBM) and Intel Corporation (NASDAQ:INTC) were the biggest laggard in the Dow and they skidded 3.5% and 1.8%, respectively.
It was the insipid results, rather, less-than-stellar results from IBM and Intel that dragged them lower, which in turn also dragged the broader markets. Looking at IBM, its first-quarter 2012 earnings per share (EPS) came in at $2.78 per, topping estimates of $2.63. Strong margin growth and share repurchases boosted the quarter’s performance and the tech-giant also raised its full-year earnings projections. However, investors focused on the revenue numbers, which remained flat year on year (currency adjustment of 1.0%) at $24.67, and was also below Street estimates. That definitely did not go down well with the investors and the stock was heavily battered.
The negative sentiment was evident in the broader markets and was further intensified by Intel’s earnings, which were below average earnings surprise. Intel’s first-quarter EPS beat the Street estimates by roughly 6%, which was lower than the average earnings surprise of 12% considering the past four quarters. Investors opted for some profit booking and eventually the shares and the benchmarks were led lower.
Also affecting the investor sentiment yesterday was the report of ratio of bad loans of Spanish banks hitting an 18-year high. The Bank of Spain confirmed that in February the bad loans totaled $182 billion, surging 8.15% of total credits. This report added to the lingering concerns over the surging borrowing costs of Spain. Since the last couple of weeks, borrowing costs in Spain had been trending up and also crossed 6% recently. On Tuesday, the 10-year bond yield had dropped below 6%, easing concerns. But, with the addition of this report, investors were surely worried about the nation’s economy.
The financial sector could obviously not have been in a healthy situation amidst such concerns and it did end up in the red zone. The Financial Select Sector SPDR (XLF) was down 0.7% and the KBW Bank Index (BKX) dropped 0.6%. As for the financial stocks, JPMorgan Chase & Co. (NYSE:JPM), The Goldman Sachs Group, Inc. (NYSE:GS), U.S. Bancorp (NYSE:USB), KeyCorp (NYSE:KEY) and Regions Financial Corp. (NYSE:RF) slumped 1.4%, 1.3%, 0.8%, 2.1% and 1.3%, respectively.