Why the Dow's Scared of Earnings Season

Tonight is the official beginning of earnings season, and investors are worried that companies' fourth-quarter results won't be as good as hoped. With estimates for overall fourth-quarter earnings growth having fallen from nearly 10% as recently as three months ago to less than 3% now, pessimists are focusing on the potential impact of Hurricane Sandy, as well as the long political stalemate that eventually led to the much-maligned fiscal-cliff compromise. Yet with both of those factors being temporary, any impact they had in the fourth quarter shouldn't reflect badly on the current quarter or the rest of 2013. Nevertheless, investors are taking the excuse to sell, and the Dow Jones Industrials (DJINDICES: ^DJI  ) are down another 60 points as of 10:45 a.m. EST.

Within the Dow, AT&T (NYSE: T  ) dropped 1.5% despite announcing that it sold a record number of smartphones in the fourth quarter. With 10 million units sold, the telecom giant attributed the gains to the iPhone 5 and a general increase in overall subscriber counts -- factors similar to those Verizon (NYSE: VZ  ) cited yesterday in its own positive announcement. Analysts focus on the short-term impact of smartphone subsidies, but given their high-priced data plans, AT&T and Verizon both manage to make back those amounts fairly early in a typical two-year contract.

Outside the Dow, Star Scientific (NASDAQ: RCPI  ) soared almost 7% as the company reported positive results from a human thyroid study that looked at the impact of its anatabine dietary supplement, Anatabloc. With statistically significant drops in targeted antibody levels, the supplement could see sales climb. Given the company's shift away from tobacco-related products and toward supplements, the news could help Star Scientific's long-term prospects.

Finally, Cypress Semiconductor (NASDAQ: CY  ) declined more than 9% after issuing a warning on its fourth-quarter profits. With the company expecting adjusted earnings per share of $0.03 to $0.04 -- well below analyst estimates for $0.14 -- and lower revenue as well, Cypress argued that customers simply spent less on its products near the end of the year than expected. Hopefully, that reluctance will prove to have been related to fiscal-cliff fears, and the company expects to see sales bottom out in the first quarter.

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