U.S. Stocks Drop, Weighed Down by Apple, Microsoft--Update

By Saumya Vaishampayan 

Investors poured out of technology stocks Wednesday, spooked by disappointing results from Apple Inc. and Microsoft Corp.

The retreat pushed the Nasdaq Composite Index down 36.35 points, or 0.7%, to 5171.77 and added to a dour mood in markets as the rout in commodities including gold and oil continued.

Investors scraping for growth amid the soft economic recovery had driven the Nasdaq to a record as recently as Monday, encouraged by solid results from Google Inc. and Netflix Inc. But Apple's drop Wednesday was a reminder that expectations for technology companies have soared to the point that any disappointment can leave shares vulnerable.

After the bell Tuesday, Apple posted a 38% surge in profit and said it sold 35% more iPhones in the fiscal third quarter compared with a year earlier. Shares fell 4.2% Wednesday as iPhone sales missed some analysts' estimates, and the company indicated its revenue in the current quarter could come in below Wall Street forecasts.

"Not only is it a huge company, there are a lot of companies that depend on Apple for their businesses," said Chris Gaffney, president of EverBank World Markets. "With future demand possibly not as strong, we saw those shares get hurt overseas," he added.

The S&P 500 fell 5.06 points, or 0.2%, 2114.15 and the Dow industrials lost 68.25 points, or 0.4%, to 17851.04.

Swings in Apple's shares can spark big moves in the U.S. stock indexes. As the largest company by market capitalization in the S&P 500 and Nasdaq, Apple has an outsize impact on the two market-cap-weighted indexes. Apple is among the companies with the highest stock prices in the Dow, which gives it major sway over the price-weighted blue-chip index.

Adding to the downbeat tone for tech shares, Microsoft Corp. reported a $3.2 billion quarterly loss in its fiscal fourth quarter on Tuesday afternoon, its biggest quarterly loss ever. Shares fell 3.7%.

Still, many investors noted that even with Wednesday's pullback, stocks remain near all-time highs. The S&P 500 is 0.8% away from its record close of 2130.82, and the Nasdaq is 0.9% below its closing high of 5218.86.

"For most of the year, from my vantage point, we've been in a sideways trading range," said Sahak Manuelian, a managing director at Wedbush Securities. "The market is still bouncing up and down," he said.

The slump in commodities continued Wednesday. Gold futures declined 1.1% to $1091.40 an ounce. Crude-oil futures fell 3.3% to $49.19 a barrel, notching their 16th decline in the past 20 sessions.

The tumble in crude-oil prices, which have slumped about 50% from a year ago, has depressed earnings for companies in the energy sector. But that price decline, investors say, should prompt consumers to loosen their purse strings, spurring earnings growth in other parts of the stock market.

"This is a consumer economy," said Bill Hench, who manages about $3 billion as a portfolio manager at Royce Funds. "What's really encouraging...is the tremendous pullback in commodities prices. As you get into the winter, when it starts affecting heating bills, it's going to be a significant tailwind for the economy," he added.

Mr. Hench mainly buys shares of small companies. Those companies, he said, are more closely tied to the economic health of the U.S. and are poised to see better earnings growth if the economy picks up.

Declines in technology shares Wednesday weighed on European markets. France's CAC-40 slipped 0.5% and Germany's DAX lost 0.7%.

In other U.S. corporate news, Boeing Co. said sales rose 11% in the June quarter, helping its profit top analysts' expectations. Shares rose 1%.

Baker Hughes Inc. shares fell 3.9% after a report said Halliburton Co.'s planned acquisition of Baker Hughes could encounter antitrust issues. Halliburton shares slipped 0.8%.

Meanwhile, Treasury prices rose as investors sought out haven assets amid the rout in commodities and declines in stocks. The yield on the 10-year Treasury note slipped to 2.322% from 2.342% on Tuesday.

Write to Saumya Vaishampayan at [e-mail]

Access Investor Kit for Facebook, Inc.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US30303M1027