Profit slowdown hits US markets

A trader reacted at the closing bell of the New York Stock Exchange Friday. The Dow closed at 13,343.51, down 205.43.
Mary Altaffer/Associated Press
A trader reacted at the closing bell of the New York Stock Exchange Friday. The Dow closed at 13,343.51, down 205.43.

The growing list of downbeat financial announcements from US companies generated the worst stock sell-off in nearly four months.

On Friday, it was General Electric and McDonald’s that disappointed analysts and sounded cautionary notes about future global economic growth. That came on the heels of weak reports from technology giants Google and Microsoft on Thursday.

With the shadow of the 25th anniversary of the 1987 stock market crash hanging over the market, share prices began dropping Friday morning and fell all day, leaving the Standard & Poor’s 500 stock index down 1.66 percent, or 24.15 points, to 1,433.19. It was the worst single day for the index since June 21, when investors were worried about the European debt crisis.


Corporate earnings have served as perhaps the strongest engines of economic growth since the financial crisis and have helped fuel a broader market rally. The benchmark S&P index is still up 14 percent for the year.

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While analysts have expected profits to grow at a slower rate, they are now concerned about slowing revenue, which can be a more pure indicator of economic health. Among the quarter of the S&P companies that have reported earnings so far, revenue rose just 0.8 percent, below the 1.5 percent that had been anticipated.

“This is an indication of what consumers are doing globally, and investors clearly don’t like it,’’ said Kim Caughey Forrest, a portfolio manager at the Fort Pitt Capital Group. “The consumer has decided not to spend that marginal dollar.’’

Even with the concern, the sell-off Friday lacked the panic that has been a part of so many other big down market days over the past few years. This time around, shares moved down in an orderly fashion, and after it was over, some traders and investors said that, while they are prepared for company profits to grow at a slower pace, they were not worried that they will disappear.

“It’s really a paring back of recent optimism, as opposed to a pessimism that will last for weeks,’’ said Ryan Larson, the head stock trader at RBC Global Asset Management. ‘‘This is a normal healthy thing for the markets to go through.’’


There is one major threat that is increasingly hanging over conversations across Wall Street: the fiscal cliff that the economy could go over if Congress and the White House do not find a way to avert looming tax increases and spending cuts by the end of the year. While the deadline has been anticipated all year, most investors have pushed it aside and assumed that politicians would reach a compromise.

“Now it’s becomes a more immediate issue, and everybody realizes it is going to be hanging over the market but not resolved,’’ said Ed Clissold, the chief global strategist at Ned Davis Research.