Stocks hit earnings roadblock

[notiCIas]

Stocks hit earnings roadblock

Disappointing outlook from P&G, Adobe rattles investors; rate worries mount, oil prices slide.

By Alexandra Twin and Grace Wong, CNNMoney.com staff writers
May 3, 2006: 5:01 PM EDT


NEW YORK (CNNMoney.com) - Stocks languished Wednesday as investors took in a string of weak earnings and interest-rate concerns came back in focus.

The Dow Jones industrial average (down 16.17 to 11,400.28, Charts) lost about 0.1 percent and the broader Standard & Poor's 500 (down 5.36 to 1,307.85, Charts) index fell about 0.4 percent. The tech-fueled Nasdaq composite (down 5.87 to 2,303.97, Charts) declined nearly 0.3 percent.


Strong earnings lifted the Dow and S&P to multi-year highs Tuesday, but the tone was more cautious Wednesday as investors eyed some disappointing earnings news and a jump in Treasury yields.

"There have been some high-profile disappointments, and those individual accidents have occurred against the backdrop of higher rates and very nervous markets," Michael Metz, chief investment strategist at Oppenheimer, said in reference to rising Treasury bond yields.

Oil slid more than $2, but that decline didn't do much to overcome rate worries. Treasury prices slumped, raising the yield on the benchmark 10-year note to new four-year highs after the release of stronger-than-expected reports on factory orders in March and the April ISM services sector index.

"Investors are beginning to realize that expectations for interest rates and earnings have been too optimistic," Metz said.

Earnings weak
After the market close, No. 1 video game publisher Electronic Arts (Research) said it swung to a quarterly loss as a switch to next-generation gaming consoles hurt sales. Shares of the company fell 5 percent in after-hours trading on the Inet electronic network.

Disappointing earnings from Procter & Gamble (down $1.89 to $56.22, Research) dragged on the Dow. The maker of consumer products reported higher fiscal third quarter earnings, but lower-than-forecast sales. The company, whose stock tumbled 3 percent, also forecast fiscal fourth-quarter earnings that are short of estimates.

Shares of Time Warner (down $0.20 to $17.22, Research), the world's largest media company, fell about 1 percent. The company reported quarterly earnings and sales in line with expectations, but its AOL Internet unit remained a weak spot. (CNNMoney.com is a unit of Time Warner.)

Adobe Systems (down $3.29 to $35.06, Research) pressured technology shares after it warned late Tuesday that fiscal second-quarter earnings and revenue would hit the lower end of its previous forecast, due to weakness in European and North American markets. Shares of the software maker slumped 9 percent.

In addition, Electronic Data Systems (down $1.62 to $26.00, Research) reported quarterly earnings late Tuesday that rose from a year ago, but missed forecasts.

PDL Biopharma (down $6.49 to $21.10, Research) reported quarterly earnings that improved from a year ago but missed estimates, and also warned that full-year 2006 earnings will miss forecasts. Shares slumped 22 percent in unusually active Nasdaq trading.

Cigna (down $15.50 to $90.00, Research) and wireless headset maker Plantronics (down $10.78 to $25.86, Research) also both tumbled after posting quarterly profit declines.

On the upside, Qualcomm (up $0.69 to $51.75, Research) boosted its fiscal third-quarter earnings forecast, citing strong orders for mobile phone chips. Hewlett-Packard (up $0.52 to $32.84, Research) also advanced, gaining about 1.6 percent.

Market breadth was negative. On the New York Stock Exchange, winners beat losers three to two on volume of 1.73 billion shares. On the Nasdaq, losers narrowly beat winners on volume of 2.16 billion shares.

Oil tumbles
Crude oil for June delivery tumbled $2.33 to settle at $72.28 a barrel on the New York Mercantile Exchange after the government's weekly inventory report showed a surprise build up in crude supplies.

Oil majors Exxon Mobil declined, and the Philadelphia Oil Service (down 5.21 to 229.77, Charts) sector index lost 2.1 percent.

The slide in crude prices didn't do much to help investors overcome their rate worries. Treasury prices declined, raising the yield on the benchmark 10-year note to 5.14 percent from 5.11 percent late Tuesday. Bond prices and yields move in opposite directions.

COMEX gold for June delivery gained $1.10 to $668.50 an ounce.