Microsoft's Miss Threatens the Dow's Record Rally

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Earnings season usually involves individual-company news that's important for that particular stock, but not necessarily for the market as a whole. But when industry giants report especially disappointing results, it can have a ripple impact on the entire stock market, and that's what we've seen today from Microsoft (NASDAQ: MSFT  ) . When you combine poor earnings news with the troubling news from Detroit that the city had filed what will be the largest municipal bankruptcy proceeding ever, it's not surprising to see the Dow Jones Industrials (DJINDICES: ^DJI  ) pull back modestly from its recent record levels. As of 10:35 a.m. EDT, the Dow was down 24 points, while the tech-heavy Nasdaq Composite fell somewhat more sharply.

Microsoft's bad news came yesterday afternoon after the market closed, but the impact has been extensive, with the stock down 9%. The company missed estimates on both earnings and revenue by substantial margins, as falling revenue from its cash-cow Windows division reflected the big plunge in PC demand that has plagued the industry lately. At the same time, discounts on its Surface RT tablet forced the company to take a $900 million writedown. In response, multiple analysts cut their ratings on the stock. To keep the move in perspective, even after today's losses, the stock is still up almost 20% on the year and, in the long run, the real question for the company is whether its restructuring and its efforts to bolster newer product and service lines will bear as much fruit as its long-lived PC-based franchises have.

On the other side of the spectrum, though, was General Electric (NYSE: GE  ) , which gained almost 5%. Second-quarter profits climbed less than 1%, on a 4% drop in sales, but GE noted an improvement in the U.S. economy that it expects will result in profit growth during the second half of 2013. In particular, the company's energy business showed sales strength, as an improving environment for domestic drilling helped boost GE's oil-and-gas drilling equipment business. In all, the report confirmed the success of GE's broad strategy, and showed promise for the future.

Finally, outside the Dow, Advanced Micro Devices (NASDAQ: AMD  ) plunged 17% after reporting last night that it lost money in its second quarter. Like Microsoft, AMD has suffered from falling PC demand for a long time, and in the wake of Intel's (NASDAQ: INTC  ) equally disappointing report on Wednesday, investors once again called into question the company's strategy of focusing on gaming consoles. Despite AMD's assurances that revenue would rise by 22% sequentially in the current quarter, projections for falling margins aren't giving investors much reassurance about its long-term prospects.

Even in the face of quarterly earnings disappointments, the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report, "3 Stocks That Will Help You Retire Rich," names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

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  • Report this Comment On July 19, 2013, at 12:30 PM, 1945ivac wrote:

    Microsoft has good software and work on that to be sure no hacking can be done. Look at their old

    hotmail and think about offering it as a price for those individuals who want it. Note I can still read that old hotmail i saved years ago on a floppy disk as a historical document. For the record I own no microsoft stock or other fininical interest in the company respectfully Michael

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