U.S. Stocks To Drop At Opening On Credit, Earnings Worries
NEW YORK (MarketWatch) - U.S. stocks are set to drop sharply at the opening Tuesday, as disappointing earnings reports from Dupont and Countrywide Financial coupled with fresh signs of stress in credit markets dampened sentiment.
In signs that the meltdown in subprime mortgage markets is spreading, Countrywide reported troubles with its near-prime loans while Wall Street firms postponed a $3.1 billion debt deal to finance the buyout of a General Motors unit.
Earnings reports also will be in focus, including a softer-than-expected outlook from Texas Instruments Inc. , in-line results from fast food giant McDonald's Corp. and a worrisome 33% profit drop by subprime lender Countrywide Financial.
The futures contract for the Dow Jones Industrial Average last was down 71 points at 13,940.
Futures contracts for the S&P 500 and the Nasdaq 100 were off 8.30 points at 1,540.70 and down 14.5 points at 2,039.
On Monday stocks closed higher, but off their best levels of the session, lifted by positive response to some earnings reports and the new Transocean-GlobalSantaFe deal.
By Tuesday morning the market's mood had turned gloomy.
"Right now there is a confluence of earnings concerns and credit concerns," said Peter Boockvar, equity strategist at Miller Tabak.
"The earnings reports are overall decent and even slightly better than expected," he said. "But investors have become more used to earnings that beat expectations by much larger amounts. And credit markets are still under duress."
There are no top-tier economic reports to lend direction to trade on Tuesday.
Earnings news
Shares of Countrywide Financial were 9% lower in premarket electronic trade. The subprime lender reported a 33% decline in quarterly profit and some charges for prime home-equity loans.
Shares of Texas Instruments fell 3.4% to $36.90 in premarket electronic trade. The maker of microchips for cell phones reported that the low end of its third-quarter earnings outlook was below market expectations.
PepsiCo Inc. had earnings that beat expectations. The stock should be active after the opening.
Eli Lilly & Co. shares rose 2.3% to $58.50 before the opening. The pharmaceutical company's profit slipped on some special charges, but it also raised its outlook for the year.
Dow components
McDonald's fell 1.8% to $51.58 before the bell. The company was forced to take a quarterly loss on some special charges in its Latin American divisions. However its quarterly same-store food sales spiked more than 7% and its earnings per share result meet expectations.
AT&T Corp. , also a Dow component, dropped 0.7% to $39.75 before the opening. The telecom's quarterly profit rose 61%, aided by the acquisition of BellSouth and the addition of 1.5 million net wireless customers. Its earnings beat expectations,
Another member of the Dow, American Express Co., last was 2% higher at $63.40. But the company also reported an 85% jump in loss provisions.
DuPont last was off 2.7% at $51.80. The chemicals giant reported flat second-quarter revenue and a 5.1% gain in revenue. The company's earnings per share did not meet expectations.
Brokerage action
Some analysts are concluding that a number of financial stocks have been excessively punished by the subprime lending crisis and think now is a good time for investors to seek bargains.
Merrill Lynch upgraded insurer Genworth Financial to a buy rating, saying that concern about the firm's exposure to credit difficulties is being exaggerated by the market.
Analysts at Keefe Bruyette & Woods upgraded Evercore Partners to an outperform rating, saying the financial stock is undervalued by almost one-third.
Other markets
The dollar fell to a fresh all-time low against the euro, a 26-year trough against the British pound early Tuesday, on heightened fears thathe troubled housing market will hurt the broader economy.
The greenback also dropped to its lowest level in 18 years against the Australian dollar and a 10-week low against the yen. The U.S. Index, which tracks the dollar against a basket of the world's major currencies, tumbled to a fresh 15-year low at 80.015.
The dollar last traded down 0.3% at 120.63 yen, as the euro rose 0.3% to $1.3838 and the pound gained 0.2% to $2.0628.
The heightened worries about the debt markets sparked safe-haven demand for Treasurys. The benchmark 10-year note last was up 2/32 at 96-18/32 with a yield of 4.948%.
Crude-oil futures extended their losses early Tuesday to trade below $74 a barrel, as comments from OPEC and expectations of rising gasoline supplies weighed on sentiment.
Gold futures gained ground early Tuesday as the dollar fell against other major currencies, boosting demand for the precious metal. The front-month contract last was up $5.30 at $686.80 an ounce.
By Leslie Wines