Weaker-than-expected results of a major bank coupled with concerns over weak sales reports of a technology bellwether dragged the benchmarks into negative territory. Apprehensions surrounding the growth of the global economy added to the gloom. All the top ten S&P 500 industry groups suffered losses, among which energy stocks suffered the most.
The Dow Jones Industrial Average (DJI) decreased 0.9% to close the day at 14,618.59. The S&P 500 lost 1.4% to finish yesterday’s trading session at 1,552.01. The tech-laden Nasdaq Composite Index slid 1.8% to end at 3,204.67. The fear-gauge CBOE Volatility Index (VIX) surged 18.3% to settle at 16.51. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 7.89 billion shares, well above 2012’s average of 6.48 billion shares. Declining stocks outnumbered the advancers. For the 22% that advanced, 76% declined.
In the fourth quarter of 2012, corporate results and economic numbers were robust. The markets touched all-time highs on the back of strong housing numbers and an improving job scenario. But weak payroll data and mixed economic numbers in this quarter indicates a lull in the economy. In spite of witnessing one of the worst trading days this week, the Dow Jones and the S&P 500 are up 11.6% and 8.8%, respectively, from the previous year’s level. According to the Thomson Reuters data, analysts expect a rise 1.7% in the earnings in comparison with the previous quarter.
Investor sentiment was dampened during early trading after Bank of America Corp (NYSE:BAC) reported earnings below the Street’s estimates. Investors grew more cautious when a supplier, Cirrus Logic, Inc. (NASDAQ:CRUS) to technology bellwether, Apple, Inc. (NASDAQ: AAPL), reported weakening demand for Apple’s products, iPad and iPhone.
Weak international numbers added weight to investor sentiment. According to the Association of European Carmakers, car sales in Europe decreased 10.3% in March. Registration of cars dropped to 1.35 million this year from 1.5 million in the previous year. This data reflected a sixth consecutive annual decline in car sales. Meanwhile, unemployment rate in Britain increased 0.3% sequentially on a quarterly basis to 7.9% in February.
The Federal Reserve’s Beige report, which covers twelve Federal Reserve districts, indicated an economic expansion in comparison with the previous month. Companies related to residential construction and automobiles led growth in most of the districts while a slowdown was seen in defense-related companies. Increase in the gasoline price, expiration of the payroll tax cut and winter weather remain a barrier for further growth. Employment conditions were unchanged or marginally improved in most of the areas. Hiring took place in a few sectors such as residential construction, information technology, professional services and manufacturing sector.
On the earnings front, shares of banking giant Bank of America Corp. decreased almost 4.7% after it reported results below the Street’s expectations. The revenue of the company increased to $23.7 billion or $0.20 a share in comparison with estimates of $23.4 billion or $0.22 a share. Profits of the company were largely hit by the $500 million lawsuit it lost in settlement to shareholders.
Of the top ten S&P 500 industry groups, energy stocks suffered the most. The Energy Select Sector SPDR (XLE) lost almost 2.2%. Stocks such as Exxon Mobil Corporation (NYSE:XOM), Hess Corp. (NYSE:HES), Marathon Oil Corporation (NYSE:MRO), Suncor Energy Inc. (USA) (NYSE:SU) and Chevron Corporation (NYSE:CVX) lost 0.6%, 2.7%, 3.4%, 2.1% and 1.9%, respectively.