Citigroup earnings put the brakes on Wall St rally
Wall Street’s rally skidded to a halt today after weaker-than-expected earnings from Citigroup Inc. raised questions about other companies’ second-quarter results – but a drop in oil prices limited the market’s decline.
With two weeks of earnings reports ahead, Citigroup’s profits punctured some of the optimism that lifted stocks last week. The nation’s largest financial institution said challenging market conditions, especially in its fixed-income trading, left it with earnings 5 cents below Wall Street expectations.
“Citigroup got the market off to a bad start,” said John C. Forelli, portfolio manager for Independence Investment LLC in Boston.
“Investors are pre-programmed for companies to beat (earnings) expectations.”
The price of oil fell 1 a barrel in morning trading after OPEC lowered its 2005 global demand forecast. The decline put a floor under stocks’ fall. A barrel of light, sweet crude oil settled at 57.32, down 77 cents, on the New York Mercantile Exchange.
The Dow Jones industrial average fell 65.84, or 0.62%, to 10,574.99.
Broader stock indicators also dropped. The Standard & Poor’s 500 index fell 6.79, or 0.55%, to 1,221.13, and the Nasdaq composite index fell 11.91, or 0.6%, to 2,144.87.
“We’re seeing some normal profit taking that comes after the nice run we’ve had since May,” said Janet Engels, senior vice president, director of Private Client research group at RBC Dain Rauscher.
Although earnings are dominating the market this week, traders are also waiting for Federal Reserve Chairman Alan Greenspan to deliver his much-anticipated semi-annual testimony on monetary policy before Congress on Wednesday and Thursday.
In a letter to Congress dated July 11 and reported by Dow Jones, the Fed chairman said the economy is dealing ”pretty well” with high energy prices. Analysts expect Greenspan to stress that the economy continues to show solid gains and inflation remains subdued. He is not expected to hint that the Fed will pause in hiking interest rates.
“The market is trying to figure out what to focus on,” said Forelli.
“Some days they focus on the high price of oil and the Fed continuing to raise rates, other days they focus on strong earnings reports and the Fed being close to being done.”
Bonds dropped sharply on news of Greenspan’s letter, with the yield on the 10-year Treasury note rising to 4.21% from 4.17% late Friday. The US dollar was down against the euro. Gold prices were flat.
In stocks, Citigroup fell 1.42 to 45. Its disappointing earnings contrasted with those of Bank of America Corp., which released results that beat analysts’ expectations by 5 cents a share. But Bank of America fell 90 cents to 45.08 as investors focused on declining profit margins from the company’s loans.
Tobacco stocks fell after the Justice Department asked the Supreme Court to let it seek 280 billion (-232 billion) in past profits from cigarette makers, after an appeals court said the government could not seek the money. Altria Group Inc. dropped fell 74 cents to 65.91; British American Tobacco PLC fell 17 cents to 37.58 and Imperial Tobacco Group PLC fell 44 cents to 51.67.
Guidant Corp. warned physicians that replacements might be needed for nine pacemaker models made between 1997 and 2000, of which some 28,000 remain implanted in patients worldwide. The announcement was the latest bad news from Guidant, which last month recalled almost 109,000 implanted defibrillators. Its stock fell 2.10 to 67.31.
Scholastic Corp. said a record 6.9 million new Harry Potter books sold in the first 24 hours of US sales. Sales for the sixth instalment of Rowling’s fantasy series easily outpaced those for Potter V and, with an estimated 100 million (-83 million) in revenue, beat the estimated take for the weekend’s top two movies. Scholastic rose 28 cents to 37.34.
Whirlpool Corp. offered to buy fellow appliance maker Maytag Corp. for 1.37 billion in cash and stock, topping an earlier offer Maytag accepted from an investment group. Whirlpool’s offer of 17 per share represents a 21% premium over the offer from Triton Acquisition Holding Co. Maytag said its directors would consider Whirlpool’s bid, but had not changed their recommendation for the previous deal. Whirlpool rose 3.32 to 73.31. Maytag rose 2.03 to 17.48.
The Russell 2000 index of smaller companies fell 5.18, or 0.78%, to 658.56.
Declining issues led advancers roughly 3 to 2 on the New York Stock Exchange, where volume was 1.20 billion shares, down from 1.32 billion Friday.
