Wall St slides ahead of earnings season

US stocks fell to their lowest levels in two months on Tuesday as investors sold shares ahead of the start of the second-quarter earnings season.

Confidence in the economic recovery was knocked by talk of a potential second government stimulus plan after Laura Tyson, an economic adviser to president Barack Obama, and House Democratic leader Steny Hoyer both suggested there could be merits to such a package.

Economic fears and a strong dollar took its toll on commodities, with the price of oil falling for a fifth consecutive session.

Energy producers followed, and Schlumberger dropped 4.4 per cent to $49.20 while Exxon Mobil lost 2.3 per cent to $66.56.

Industrial stocks also suffered, and General Electric gave up 4.1 per cent to $11.01.

But Alcoa, the aluminium producer, was buoyant after Klaus Kleinfield, its chief executive, said he was ”very optimistic” about sales ahead of its earnings on Wednesday. The shares gained 1.6 per cent to $9.41.

The benchmark S&P 500 closed down 2 per cent at 881.03, while the Dow Jones Industrial Average lost 1.9 per cent to 8,163.60 and the Nasdaq Composite gave up 2.3 per cent to 1,746.17.

That came after sharp selling in the afternoon as the S&P fell below its 200-day moving average, which is seen as a key support level.

“The ten-year Treasury bond has taken off and the dollar is strengthening, which is bad news for stocks,” said Dave Rovelli, managing director of trading at Cannacord Adams. “We got way too positive too soon.”

Analysts predicted that the market would remain subdued at least until Thursday, after Alcoa has reported its results.

“Everyone is taking a deep breath before earnings,” said Andy Corn, chief investment officer, equities, at Beacon Trust.

The pressure from energy and materials stocks was counteracted by strength from health insurers after president Obama and his chief of staff Rahm Emanuel stressed that a public health insurance plan would help keep the private sector competitive.

Health insurers, which have suffered on concerns about the effects of the president’s reforms, bounced on Tuesday.

UnitedHealth gained 4.5 per cent to $25.17 and Aetna rose 6.3 per cent to $25.94.

“It shows how sensitive those stocks are that some words from the White House last night have given those stocks a pop,” said
Mr Corn.

Certain microchip manufacturers performed well after Bank of America raised its ratings for several companies in the sector.

The bank said it saw a “definitive turn in end demand” and recommended that investors buy stocks in Intel, the market leader.

But Intel lost its early gains amid a wider sell-off in the technology sector and finished 1.8 per cent down at $16.25.

BofA also upgraded Marvell Technology, which gained 0.9 per cent to $11.50 and LSI, which climbed
2.2 per cent to $4.65.

Banking stocks were mixed as banks continued to raise capital to bolster their balance sheets.

KeyCorp was one of the sector’s strongest stocks after KBW upgraded the shares, saying the bank’s balance sheet was stronger than the Treasury required after it raised fresh capital. Keycorp’s shares climbed 4.1 per cent to $5.29.

But shares in Discover Financial, the credit card group, dropped 10.8 per cent to $9.37 after the company announced it would issue $500m of stock.

Discover, which only made a profit last quarter after successful litigation against rivals Visa and MasterCard, forecast a default rate of up to 9 per cent in the third quarter.

Goldman Sachs gave an initial boost to Kohl’s after it upgraded the shares, saying it is the best positioned department store to show positive same-store sales in the fourth quarter. But Kohl’s could not resist the selling and its stock closed 0.9 per cent down at $42.30.

Goldman downgraded BJs Wholesale Club, however, the warehouse club that has prospered as shoppers look for bargains.

The bank said consumers would soon begin returning to more discretionary retailers, and BJ’s shares fell 2 per cent to $31.46.