Earnings Concerns Push Shares Lower

Earnings Concerns Push Shares Lower

By JACK HEALY
Published: April 6, 2009

Wall Street took losses on Monday after four consecutive weeks of wins as traders hunkered down for a rough corporate earnings season.

Technology shares fell on reports that the computer giant I.B.M. had withdrawn its $7 billion offer to buy Sun Microsystems, which makes computer software and servers. Shares of I.B.M. fell 0.7 percent to $101.56, while Sun fell 22.5 percent to $6.58 a share as investors raised questions about the next step for the company.

The Dow Jones industrial average finished down 41.74 points, or 0.5 percent, at 7,975.85. The wider Standard & Poor’s 500-stock index fell 0.8 percent, or 7.02 points, to 835.48. The Nasdaq declined 15.16 points, or 0.9 percent, to 1,606.71.

The losses ate into last week’s 3 percent gains in the Dow and the S.& P. 500.

Financial companies fell about 3 percent, according to Standard & Poor’s financials index after a report from the banking analyst Mike Mayo, who recently joined Calyon Securities after leaving Deutsche Bank. Mr. Mayo, who is known for his bearish but independent analysis, predicted that banking loan losses this year compared with their total loans would “increase to levels that exceed the Great Depression.”

He rated 11 major and regional banks as sell or underperform. Shares of Bank of America, JPMorgan Chase and Citigroup fell slightly.

Defense companies including Lockheed Martin, Northrop Grumman and Raytheon rose as investors speculated that they would fare well under an overhauled Pentagon budget. On Monday, the Defense secretary, Robert M. Gates, outlined broad proposed changes in how the military spends.

With the major indexes up more than 20 percent since their March lows, analysts say earnings season could pose an important test of investor confidence in the stock market.

On Tuesday, the aluminum maker Alcoa will report its quarterly earnings after the market closes, reprising its role as the first major company to do so.

“What investors want to hear from executives — and what they may not get — is that things improved through the quarter,” said Jeffrey N. Kleintop, chief market strategist at LPL Financial. “The worry is we may not get that tone, that they might continue to take down guidance in the coming quarters.”

The price-to-earnings ratio on the S.& P. 500 is about 12 to 13, making stocks look cheap compared with the days when stocks sold for 20 times earnings, or more. But some analysts argue that while stock prices may look cheap, expectations of profits and revenues do not reflect the true scope of the global economic downturn.

Stock markets were lower in Europe. The FTSE 100 in London, the DAX in Frankfurt and the CAC 40 in France were all down just less than 1 percent.

The Treasury’s 10-year note fell 10/32, to 98 17/32. The yield, which moves in the opposite direction from the price, rose to 2.92 percent, from 2.89 percent late Friday.

Following are the results of Monday’s Treasury auction of three- and six-month bills:

http://www.nytimes.com/2009/04/07/business/07markets.html?_r=1&ref=business