Stocks fell in early trading Tuesday
A disappointing profit report from Alcoa and moves by China to curtail growth stirred concern among investors that the global economy will have trouble recovering.
Stocks fell in early trading Tuesday after earnings and revenue from aluminum producer Alcoa Inc. fell short of expectations. Alcoa is often one of the first big companies to report quarterly results and investors look to its numbers for an early read on corporate earnings overall.
Alcoa said higher metal prices were offset by weakness in the aerospace, construction and gas turbines businesses. Revenue also fell.
Investors will be tracking revenue as companies report earnings over the next few weeks for any signs that customers are returning to the marketplace. Earnings improvements in 2009 often came from cost-cutting and not sales growth. Companies can only slash costs for so long and will need higher revenue to grow.
Concerns about the prospects for Alcoa and other companies that produce raw materials rose after China again tightened its monetary policy and boosted the amount banks must hold in reserve. The moves are aimed at keeping growth in the country from charging ahead too fast but could also slow the pace of recovery in other countries and hurt companies that sell resources to the world’s most populous nation.
Michael Sheldon, chief market strategist at RDM Financial Group in Westport, Conn., said China’s incremental steps to tighten monetary policy are likely to be repeated by other central banks this year.
He noted that “2009 was a year the liquidity spigot was open full blast,” and that 2010 will be “a year where central reduce the tremendous amounts of liquidity to markets.”
In midmorning trading, the Dow Jones industrial average fell 22.22, or 0.2 percent, to 10,641.77. The Standard & Poor’s 500 index fell 6.63, or 0.6 percent, to 1,140.35, while the Nasdaq composite index fell 18.23, or 0.8 percent, to 2,294.18.
The Dow and S&P 500 both rose Monday helped by a rise in industrial stocks. The sector got a boost after a report showed Chinese exports jumped 18 percent in December. The larger-than-expected increase came after 13 straight months of declines, raising hopes the world economy is recovering.
Monday’s report on Chinese exports and other signs of strengthening in the economy is now pushing the country to tighten up its monetary policy. China’s central bank on Tuesday increased the interest rate on its one-year bill to 1.84 percent from 1.76 percent. The rate had been steady since August.
It also raised the ratio of reserves banks must hold by 0.5 percentage points. That change will go into effect Monday.
Investors found other concerns. Video game publisher Electronic Arts Inc. said it did not see a rebound in sales during the most recent quarter. It slashed its full-year earnings forecast after the market closed Monday, saying weakness in game sales didn’t ease during the holidays.
Alcoa fell $1.42, or 8.1 percent, to $16.03, while Electronic Arts slid $1.37, or 7.5 percent, to $16.90.
The U.S. trade imbalance continued to grow in November. The Commerce Department said a jump in exports was more than offset by growing imports as the economy starts to pick up. The trade deficit climbed 9.7 percent to $36.4 billion, its highest level in 10 months.
Meanwhile, U.S. bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.74 percent from 3.82 percent late Monday.
The dollar slipped, while gold fell.
Crude oil fell 97 cents to $81.55 per barrel on the New York Mercantile Exchange.
The Russell 2000 index of smaller companies fell 3.28, or 0.5 percent, to 640.71.
Three stocks fell for every one that rose on the New York Stock Exchange, where volume came to 189.5 million shares compared with 182.3 million shares traded at the same point Monday.
Britain’s FTSE 100 fell 1.1 percent, Germany’s DAX index lost 1.3 percent, and France’s CAC-40 dropped 1.4 percent. Japan’s Nikkei stock average rose 1 percent.