Disappointing earnings weigh down stock market

Earnings from toys, clothes and banks fail to impress; investors wait for election clarity

Associated Press
Market waits for election; earnings disappoint
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Trader Michael Zicchinolfi, center, works on the floor of the New York Stock Exchange Monday, Oct. 22, 2012. A weak forecast from heavy equipment maker Caterpillar and other poor earnings results weighed on the U.S. stock market in early trading. (AP Photo/Richard Drew)

NEW YORK (AP) -- It's been a disappointing earnings season.

The stock market turned lower Monday afternoon as investors absorbed more underwhelming third-quarter earnings reports. Shares of toymaker Hasbro, clothing maker VF Corp., regional bank SunTrust and other companies fell.

The overhang of the presidential election in two weeks didn't help. Investors are wary of making big moves before they know who's going to be the next president.

"They need to know the playing field before they get out there and play," said Jeff Savage, regional chief investment officer for Wells Fargo Private Bank in Portland, Ore.

The major indexes were all down by mid-afternoon, after waffling between small gains and losses.

The Dow was down 83 points to 13,261 shortly before 3 p.m. The Standard & Poor's 500 index was down nine to 1,424 and the Nasdaq composite index fell five to 3,001.

Investors are also anxious about a government report due out Friday on how much the U.S. economy grew in the third quarter. The corporate earnings reports were full of signs that consumers, who drive the bulk of economic growth, are far from healed.

Hasbro, the toymaker behind brands like My Little Pony and Transformers, said that sales for boys' products and preschool toys were weaker than it had hoped, and it missed analysts' revenue predictions. The stock slipped 58 cents to $38.47.

Clothing maker VF Corp., whose brands include Timberland and Wrangler, also missed analysts' revenue estimates. Investors may have been disappointed that North Face sales were hurt by recession-riddled Europe. The stock lost $8.49, hitting $158.28.

SunTrust Banks also slipped. Its third-quarter earnings jumped, but that was largely because the bank sold shares it owned in Coca-Cola. The Atlanta-based bank wrestled with higher expenses as well as low interest rates, which can crimp the profit banks make from lending out money. The stock lost $1.19 to $27.44.

Shares rose for Caterpillar, the world's largest construction and mining equipment company, gaining 48 cents to $84.34. But the company warned that it expects lower profit and revenue for the rest of the year.

And the reports on Monday followed other dissatisfying results last week from companies like Microsoft, General Electric and McDonald's.

To be fair, most companies are reporting better-than-expected profits. But now, investors want to know how companies are faring on revenue. Revenue can give a more accurate picture of how a company is performing, because profits can vary widely on items like accounting charges and cost-cutting.

David Katz, principal and senior portfolio strategist at WeiserMazars Wealth Advisors in New York, described companies' third-quarter revenue results as "fair" and said the U.S. economy is "slow and steady."

"It is at a snail's pace," he said. "But it's certainly better than what we had."

Of the roughly 100 companies in the S&P 500 that had reported third-quarter results as of Friday, 70 percent have beat analysts' estimates for profits, according to John Butters, senior earnings analyst at FactSet. But only 42 percent have beat estimates for revenue. That's the lowest since the first quarter of 2009, when the stock market hit its Great Recession lows.

Company profits so far this quarter are down 2.3 percent compared to a year ago. Revenue is down 0.6 percent.

One stock that jumped was Ancestry.com, the genealogy website, which announced it will be bought by European private equity firms. The stock popped $2.28 to $31.46. The buyers had offered $32 per share.

In other trading, the yield on the 10-year Treasury note rose to 1.79 percent from 1.76 percent late Friday. The euro was worth $1.30, little changed from Friday, and energy prices fell slightly. Crude oil fell $1.11 to $89.33 a barrel in New York.

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