Another morning of gloomy headlines sent the Dow Jones Industrial Average (INDEX: ^DJI) down 0.46% as of noon EDT, while the S&P 500 (INDEX: ^GSPC) fell 0.65%. The Dow last posted gains on July 3 and has been dragged down by the slowdown in the U.S., the struggles in emerging markets, and the European crisis.
These storylines doomed the markets again this morning, more via speculation than actual data. In the U.S., earnings season continues to disappoint, and today Bank of America (NYSE: BAC) strategists dropped earnings expectations for S&P 500 companies by 1.4% for this year and next. Meanwhile, Bloomberg analysts predict a 1.8% second-quarter earnings decrease, or a continuation of the negative reports thus far. These drops hit all the financials hard because of their exposure to broader performance, but Bank of America took an especially large hit. Shares slipped almost 3%.
The global economy factored heavily into these earnings drops. Emerging-market stocks dropped again and currently ride a seven-day losing streak. The culprit: more of the same. The South Korean central bank announced slower-than-expected growth and cut interest rates, while India's second-largest software exporter missed profit estimates. Low commodity prices challenge resource-rich markets like Russia and Brazil, and increasingly negative Chinese headwinds continue to worry investors.
A glimmer of hope did emerge from jobless claims dropping to a four-year low! The news comes with an asterisk, since it only reflects automakers skipping annual early July layoffs, and workers typically file for benefits during those two weeks. But the companies held onto workers because of heightened demand, and even though the jobs improvement will reverse itself as soon as next week, the demand for luxury goods like cars is a very healthy sign for the economy. Of course, an OECD report did dampen enthusiasm from the news, reminding investors of the 4% employment drop and painfully slow recovery since 2008.
One winner, one loser
Macro data generally guided the individual players as well, but drug manufacturer Merck (NYSE: MRK) actually jumped more than 4% on the morning despite the overall sag. After ending a phase 3 clinical trial ahead of schedule for a key osteoporosis drug candidate because of excellent results, the company now looks to gain approval from global governments, including the U.S. and Japan. Many analysts upgraded Merck to a buy after the news, and the company is optimistic that it can capitalize in the coming years.
Tech stocks accounted for four of the five big losers in the Dow today, and Microsoft (Nasdaq: MSFT) helped lead the charge. A week ago, Microsoft announced a $6.2 billion loss on its $6.3 billion acquisition of online display ad company aQuantive (from 2007).
Buffett's got the blues
The economic slide even worries Warren Buffett now. The Oracle of Omaha today called U.S. economic growth "more or less flat," while expressing particular concerns about the direction of Europe. That doesn't mean it's time to put your money in a safe, though. Ride out the volatility on established, high-yielding dividend stocks that can get you yearly returns. Click on your special free report and discover the three Dow stocks dividend investors need.
