In the U.S.: Stocks Decline as Google Tumbles

20 January 2012

Investors would no doubt find it difficult to gain a firm grasp on the market’s direction for 2012 based on a motley set of earnings reports.

U.S. stocks declined, snapping a three-day rally in the Standard & Poor’s 500 Index, amid disappointing quarterly results at companies including Google Inc. (GOOG), American Express Co. (AXP) andGeneral Electric Co. (GE)

The S&P 500 lost 0.2 percent to 1,312.13 at 9:31 a.m. New York time. The benchmark gauge rose 2 percent over the previous three days, reaching the highest level since July.

“Very mixed still best describes fourth quarter earnings reports,” Peter Boockvar, equity strategist at Miller Tabak & Co. in New York, wrote in a note. “Measured against what’s been seen over the past few years where companies beat estimates 70-75 percent of the time, it’s downright disappointing as only about half are exceeding expectations. The game of ‘Beat the Numbers’ is just expectations management and thus nonsense.”

S&P 500 companies, which beat profit estimates in the previous 11 quarters, probably will report a 4.6 percent increase in per-share earnings during the September-December period, analysts’ estimates compiled by Bloomberg show. Of the 50 companies in the S&P 500that reported results since Jan. 9, 33 posted per-share earnings thatbeat projections, according to data compiled by Bloomberg.

Investors also awaited a report which may show that sales of previously owned U.S. homes rose in December to the highest level in more than a year. Greek officials and private creditors entered a third day of negotiations on a debt swap deal that’s crucial to lowering the country’s borrowings and freeing up a second round of international aid.

‘Vicious Circle’

U.S. stocks are caught in “a vicious circle” of slower trading and bigger swings in prices, according to Pierre Lapointe, Brockhouse & Cooper Inc.’s global macro strategist. Trading for the 50 days ended yesterday was the slowest since at least 2008, when Bloomberg started compiling the data, at 6.67 billion shares a day.

Similar averages for companies in the S&P 500 and the Dow declined this week to the lowest levels since 1999 and 2000, respectively, according to Bloomberg’s figures. They reflect trading totals for each stock on the New York Stock Exchange (MVOLNE) or Nasdaq Stock Market, depending on where it’s listed.

“Getting in or out of a stock causes more price variation” because fewer shares are trading, Lapointe and Alex Bellefleur, a financial economist, wrote yesterday in a report from their Montreal-based firm. “This increases volatility.”

The Chicago Board Options Exchange Volatility Index, or the VIX, closed above 20 for almost six months before dropping below the threshold yesterday. The time period was the longest for the benchmark gauge of U.S. stock options since 2009.


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