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Question of the Day
NEW YORK (AP) — Stock indexes crept lower Wednesday after Europe edged closer to a recession that would hurt corporate profits at home. The first earnings reports from American companies didn’t add much encouragement.
The Dow Jones industrial average was down 32 points, or 0.3 percent, just after 3 p.m. EST on another day of light trading.
Germany reported that its economy, the largest in Europe, shrank slightly at the end of last year, and the European Union cut its estimate of economic growth to its slowest pace in more than two years.
The European Commission also said Hungary has taken “no effective action” to contain its deficit. Stock markets in Germany and France fell slightly, and the euro dropped half a penny against the dollar, to $1.27.
“Europe is still the main risk,” said Jeffrey Kleintop, chief market strategist at LPL Financial. “Yes, they’ve been making progress on their budgets, but they clearly have growth problems.”
The United States depends on Europe to buy about 20 percent of its exports, and concerns about Europe have led analysts to lower their profit estimates for U.S. companies.
Corporate profits are expected to be up 7.2 percent for the last three months of last year, compared with 17.6 percent the quarter before, according to Standard & Poor’s Capital IQ.
Judging by the S&P 500 index, investors seem to think earnings could fall much further, Mr. Kleintop said. The index is trading at about 13 times the past year’s earnings of its companies — close to what it was at the end of 1990, when the economy was in recession. Earnings fell 20 percent during that downturn.
The S&P 500 was down a little more than a point Wednesday at 1,291. The Nasdaq composite index was up 6 points at 2,708. The Nasdaq has risen 4 percent this year, the strongest of the major indexes.
The stock of Supervalu, a grocery store operator, plunged after reporting a wider-than-expected quarterly loss Wednesday because of high food prices and costs related to a turnaround plan. The stock was down 12 percent.
Orange juice prices, which set a record Tuesday after the U.S. government said that a potentially harmful fungicide had been found in Brazilian imports, settled back down Wednesday.
The futures contract for orange juice fell to $1.88 from $2.08 the day before. Futures have been rising since December, largely over concerns that cold weather in Florida could damage the crop there.
Even with Wednesday’s decline, orange juice was up 14 percent from its recent low of $1.65 on Dec. 21.
The recent jump in orange juice futures hit Coca-Cola, owner of Minute Maid, and PepsiCo, which owns Tropicana. Coca-Cola sank 2 percent, the most in the Dow. PepsiCo fell 1 percent.
Among other large companies making moves:
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