While you were sleeping IBM, Goldman Sachs fall short

Friday 18th October 2013

Wall Street was mixed amid disappointing earnings from companies including IBM, Goldman Sachs and eBay, and a last-minute deal by US lawmakers that ends the government shutdown and lifts the debt ceiling for now.

The agreement funds the government through Jan. 15, 2014, and extends its borrowing capacity through Feb. 7.

In late morning trading in New York, the Dow Jones Industrial Average fell 0.36 percent. The Standard & Poor's 500 Index eked out a 0.09 percent gain, while the Nasdaq Composite Index gained 0.25 percent.

The Chicago Board Options Exchange Volatility Index, Wall Street's so-called fear gauge also known as the VIX, dropped 8.8 percent to 13.42 following.

Federal Reserve Bank of Dallas President Richard Fisher warned that the central bank's efforts to bolster economic growth and lower unemployment were hampered by inaction of US lawmakers.

"As long as inflationary expectations are held at bay, we can fully open the monetary throttle in an effort to deliver on the mandate Congress gave us to help achieve full employment," Fisher said in a speech at the Economic Club of New York. "But it is for naught as long as the fiscal authorities are slamming on the brakes and leaving everyone in the dark as to how they will cure the fiscal mess they have wrought."

The government shutdown has lowered fourth-quarter GPD growth by at least 0.6 percent, according to S&P Ratings Services yesterday.

"Increasingly I'm of the view that the reason why our economy can't kick into a higher gear is because of the uncertainty created by Washington," Mark Zandi, chief economist of Moody's Analytics, told Reuters.

Shares of Cisco Systems and Caterpillar, down 2 percent and 1.1 percent respectively, were the biggest losers in the Dow.

Shares of Verizon rose, last up 3.4 percent, for the biggest gain in the Dow. The company reported third-quarter profit that surpassed estimates.

However, there were several disappointments on the US corporate earnings front too.

Shares of IBM slumped, last 5.6 percent lower, after the company posted revenue that fell short of expectations. The company reported a decline in sales for the sixth consecutive quarter.

Shares of eBay also dropped, last 4.2 percent weaker, after the company's outlook for the holiday season disappointed.

Shares of Goldman Sachs slid, last down 2.4 percent, as the company reported a 20 percent decline in revenue.

"Goldman showed that they are also mortal," Michael Holland, founder of Holland & Co, which owns financial stocks but does not own Goldman shares, told Reuters.

As of Wednesday's close, 61 S&P 500 companies have reported, with revenues missing expectations by 0.5 percent and earnings beating forecasts by 4.5 percent, according to RBC Capital Markets, Reuters reported.

In Europe, stocks fell. Germany's DAX dropped 0.5 percent, while France's CAC 40 slipped 0.1 percent. The UK's FTSE 100 was little changed from the previous close.

BusinessDesk.co.nz

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