US: IBM, United Tech drag Dow; Apple results weigh on futures

[NEW YORK] US stocks closed lower on Tuesday as results from IBM and United Technologies dampened early optimism over earnings season and after-the-bell declines in major tech shares suggested losses would continue on Wednesday.

The Dow fell 1 per cent, with IBM and United Tech contributing around 118 points to the 181-point drop. The decline marked the biggest percentage fall in about two weeks for the blue-chip index.

IBM's shares fell 5.9 per cent to US$163.07, a day after news that the company's revenues dropped for the 13th consecutive quarter and fell short of analyst expectations.

Fellow Dow component United Technologies tumbled 7 per cent to US$102.71 and was the worst performer on the Dow after cutting its full-year profit outlook for the third time this year. "For the first time in a while, fundamentals seem to be driving the action today in an otherwise very quiet macro backdrop and probably will continue to do so for the next couple of weeks as we work through the heart of earnings season," said Ryan Larson, head of US equity trading at RBC Global Asset Management in Chicago.

A trio of tech companies pushed stock futures lower after the closing bell, as Apple tumbled 6.2 per cent to US$122.65, Microsoft lost 3.5 per cent to US$45.65, and Yahoo shed 2.2 per cent to US$38.85 after their quarterly results.

Volume on the Nasdaq e-minis spiked in the minute after the Apple results as 3,935 contracts changed hands, the most active minute of the day including regular trading hours.

Strong earnings from technology companies earlier this earnings season helped drive gains on the Nasdaq, which has outperformed both the Dow and S&P 500 in July.

While markets are near record highs, June-quarter earnings of S&P 500 companies are expected to dip 1.9 per cent, according to Thomson Reuters data. That marks an improvement from the expected decline of 3 per cent on July 1, but well below the 5.9 per cent gain forecast on Jan 1.

So far, 70 per cent have reported earnings above analyst expectations, above the 63 per cent average beat rate since 1994.

However, only 53 per cent have topped revenue forecasts, below the 61 per cent average beat rate since 2002. US companies are expected to post their worst sales decline in nearly six years in the second quarter, in part due to the strong dollar that reduces the value of US companies' overseas income.

The Dow Jones industrial average fell 181.12 points, or 1 per cent, to 17,919.29, the S&P 500 lost 9.07 points, or 0.43 per cent, to 2,119.21 and the Nasdaq Composite dropped 10.74 points, or 0.21 per cent, to 5,208.12.

NYSE declining issues outnumbered advancing ones 1,841 to 1,217, for a 1.51-to-1 ratio on the downside; on the Nasdaq, 1,630 issues fell and 1,128 advanced for a 1.44-to-1 ratio favoring decliners.

The S&P 500 posted 29 new 52-week highs and 26 new lows; the Nasdaq Composite recorded 94 new highs and 114 new lows.

Volume was light, with about 6.15 billion shares traded on US exchanges, below the 6.54 billion average so far this month, according to BATS Global Markets.

REUTERS