November 24, 2020

Wall Street Sinks After Earnings Data

Apple Inc slid 5.5 percent to $402.80 after falling below $400 for the first time since December 2011. A key supplier, chipmaker Cirrus Logic, gave a disappointing revenue forecast, fueling worries about weakening demand for the iPhone and iPad.

The CBOE Volatility index, a measure of investor anxiety, jumped 18.3 percent to 16.51. It remains well below the 20 mark, however, suggesting market volatility is still considered relatively subdued.

Wednesday’s losses were the week’s second big sell-off, adding to views the market may be starting the pullback analysts have been speculating about for months. The market has had strong gains since the start of year, yet on Monday, the SP 500 posted its worst day since November 7 following a sharp drop in gold prices.

“After Monday’s gold selloff spooked U.S. equities, it seems as though the dip buyers are a bit less aggressive, allowing the market to fall a bit more,” said Gordon Charlop, a managing director at Rosenblatt Securities in New York.

“This could also be indicative of a muted risk tolerance and perhaps mark the beginning of a long-awaited equity pullback.”

The Dow Jones industrial average was down 138.19 points, or 0.94 percent, at 14,618.59. The Standard Poor’s 500 Index was down 22.56 points, or 1.43 percent, at 1,552.01. The Nasdaq Composite Index was down 59.96 points, or 1.84 percent, at 3,204.67.

Volume was roughly 7.89 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, well above the average daily closing volume of about 6.36 billion this year. Decliners outpaced advancers by nearly 4 to 1 on both the NYSE and the Nasdaq.

Financial stocks also fell after Bank of America Corp posted revenue and profits that were below Wall Street expectations. Shares of the Dow component slumped 4.7 percent to $11.70.

The SP financial index was down 1.9 percent and shares of Morgan Stanley, due to report Thursday, were down 1.7 percent.

Besides financials and technology, energy and materials sectors fell sharply along with oil and copper prices. The SP 500 energy companies fell 1.9 percent and shares of Chevron slid 1.9 percent to $114.81 and helped lead declines on the Dow.

As Apple shares moved lower, the stock’s implied volatility shot higher, reflecting more risk for the stock in the next 30 days.

“This continues a trend since December 2012 where the risk paradigm in Apple has changed,” said Ophir Gottlieb, managing director of San-Francisco-based options analytics Livevol.

In a notable technical move, the SP 500 came close to falling below its 50-day moving average. It has not fallen below the level since the end of last year.

Among other tech decliners, Texas Instruments shed 4.3 percent to $34.21. Yahoo Inc declined 0.4 percent to $23.70 after the Internet company reported first-quarter revenue that missed expectations, though many Wall Street analysts raised their price targets on the stock.

SP 500 earnings are now expected to have risen 1.7 percent in the first quarter, based on actual results from 56 companies and estimates for the rest, according to Thomson Reuters data.

That expectation is up from a previous estimate of 1.5 percent growth at the start of the month, but so far just 48.2 percent of companies this reporting period have beaten revenue expectations.

After the closing bell, shares of eBay and memory chipmaker SanDisk fell after reporting results. EBay was down 2.3 percent at $54.80 while shares of SanDisk were down 3.1 percent at $54.

Adding to uncertainty in the market, authorities said a letter sent to President Barack Obama and intercepted at a mail screening facility contained the deadly poison ricin, according to preliminary testing.

“The ongoing sequence of these terrorist incidents … doesn’t create an environment for good investor psychology,” said Bucky Hellwig, senior vice president at BBT Wealth Management in Birmingham, Alabama.

(Additional reporting by Doris Frankel and Chuck Mikolajczak; Editing by Kenneth Barry and Nick Zieminski)

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DealBook: Goldman’s Profit Falls but Tops Estimates

Goldman Sachs stock was up more than 5 percent on Wednesday at the New York Stock Exchange.Richard Drew/Associated PressGoldman Sachs was up more than 5 percent on Wednesday at the New York Stock Exchange.

Goldman Sachs said on Wednesday that it earned $978 million in the fourth quarter, well below the $2.23 billion it posted in the period a year earlier, as it continued to struggle with lackluster economic conditions both here and abroad.

Still, the performance of $1.84 a share exceeded the expectations of analysts polled by Thomson Reuters, who were predicting Goldman would earn $1.24 a share.

And while the result is below that of a year ago and a world away from the earnings power Goldman was once known for, it is better than the showing in the third quarter, when Goldman posted a loss for only the second time since it went public in 1999.

“This past year was dominated by global macroeconomic concerns which significantly affected our clients’ risk tolerance and willingness to transact,” said Lloyd C. Blankfein, Goldman’s chairman and chief executive.

While Goldman’s profit number is always of note on Wall Street, this quarter investors will also be looking at the compensation number as the firm prepares to doll out billions of dollars in bonuses. Goldman disclosed that it had set aside $12.22 billion, or 42.4 percent, of its 2011 net revenue to pay compensation and benefits for its 33,300 employees. This is down from $15.38 billion in 2010, a decline reflecting the drop in Goldman’s net revenue in 2011.

Goldman’s compensation and benefit pool is enough to pay each of the firm’s employees $367,057. A year ago, its pool would have been enough to pay each employee $430,700.

Goldman produced net revenue of $6.05 billion in the fourth quarter, down 30 percent from the period a year earlier.

Goldman’s performance is not surprising. Some of its rivals, including JPMorgan Chase and Citigroup, have already weighed in with results, and they too are struggling to churn out big trading profits in this current environment.

As revenues on Wall Street fall, firms have laser focused on cutting expenses. Goldman’s headcount is down 2,400 over the past year and during a conference call with analysts to discuss the firm’s results, its chief financial officer, David Viniar, said that towards the end of the year Goldman increased its non-compensation cost-cutting goals by $200 million, to $1.4 billion, as previously reported by DealBook.

Goldman can’t cut its way to better results, but right now, facing a drop in revenue in all of the firm’s major divisions, it doesn’t have many other levers to play with. In a research report on the earnings, a Keefe Bruyette Woods analyst, David Konrad, noted that that lower expenses was a key factor in Goldman’s ability to beat analyst expectations.

“We are currently targeting $1.4 billion in savings and will closely monitor our expense run rate and make further adjustments as necessary,” Mr. Viniar said during the conference call.

Net revenue in Goldman’s division that trades bonds, currencies and commodities was $1.36 billion, down 17 percent from year-ago levels. The firm attributed the drop to lower results in mortgages and credit products “as continued global economic uncertainty contributed to difficult market-making conditions.” This division accounted for roughly 22 percent of the firm’s total revenue in the fourth quarter.

Net revenue from equities trading and commissions was $1.69 million, down 15 percent from year-ago levels. Goldman’s annualized return on equity, a crucial measure of profitability, was 5.8 in the quarter, compared with 13.1 percent in the period a year earlier. In 2006, it was 41.5 percent.

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