US stocks fall despite Goldman results

US stocks fell on Tuesday as much better than expected results from Goldman Sachs were offset by negative economic data.

Financials were the biggest fallers even though Goldman helped return some confidence to the sector by far outstripping analysts’ estimates with its first-quarter earnings.

Goldman announced it had made $3.39 a share against expectations of just $1.49 a share on the back of strong trading figures.

But the bank’s shares fell as it also announced it was to raise $5bn of capital by issuing new shares in order to repay money from the Troubled Asset Relief Programme (Tarp).

This would dilute existing shareholdings, and its shares dropped 11.6 per cent to $115.11. Rival Morgan Stanley, which is forecast to make a loss when it reports, fell 12 per cent to $23.67.

“It’s no surprise that Goldman was profitable, when they can borrow at zero per cent from the Federal Reserve. The real question is whether it has to make
writedowns later in the year,” said Andrew Mulligan, head of global strategy at Standard Life Investments.

However, the positive underlying results did help boost Citigroup, the most beaten-up of all the major banking stocks. Citi leapt 25 per cent during Monday’s session and added 5.5 per cent on Tuesday to $4.01.

Financial shares in general were badly hit by figures which showed retail sales unexpectedly fell during March, losing 0.9 per cent, excluding sales of automobiles.

Meanwhile, the falling oil price helped drive down ­producer prices in March, contrary to analysts’ ­expectations, following two successive months of gains.

Discover dropped after it said that it would cut more than 4 per cent of its workforce as it strives to cut costs. The credit card lender also suffered from a downgrade to “hold” by Stifel Nicolaus, and its shares had lost 10.4 per cent to $7.57.

MetLife, the life insurer, also fell, despite saying it would not take federal bail-out funds, even though it is entitled to by the fact that it purchased a bank in 2001.

Robert Henrikson, its chief executive, said MetLife was “well positioned, with approximately $5bn in excess capital”. But its shares became caught in the broad sell-off, falling 8.2 per cent to $26.44.

Retailers also suffered. after the data. Home Depot lost 2.4 per cent to $25.34, while Macy’s dropped 7.3 per cent to $11.99 and Best Buy fell 6.9 per cent to $38.10.

The benchmark S&P 500 index closed 2 per cent down at 841.51 points, while the Dow Jones Industrial Average lost 1.7 per cent to 7,920.18 points and the Nasdaq Composite index had dropped 1.7 per cent to 1,625.72 points.

“Analysts are being too optimistic with their predictions on what really matters, such as how much people are spending in stores,” said Andrew Wilkinson of Interactive Brokers. “This is a really big disappointment, and one that is going to challenge the rally going forward.”

The falls came despite positive comments on the economy from President Barack Obama and Ben Bernanke, the chairman of the Federal Reserve. Mr Obama said he saw “signs of economic progress”. But stocks extended their slide after he finished speaking, with investors apparently having hoped for more from what was billed as a “major speech on the economy”.

Johnson & Johnson, the healthcare group, followed Goldman Sachs in topping analysts’ expectations with its first-quarter earnings. The company said revenues were down, but it managed to keep costs low and reported earnings of $1.26 per share, against consensus estimates of $1.22. Its shares gained 0.4 per cent to $51.37.

Lennar, the homebuilder, dropped after Moody’s downgraded its debt, citing concerns about the company’s liquidity position. Its shares lost 5.4 per cent to $7.78.

MGM Mirage saw some rare positive news after it won a waiver from lenders to pay about $70m of obligations owed by both itself and its building partner Dubai World, which would allow it to continue to build its CityCenter development in Las Vegas. Its shares gained 5.6 per cent to $6.60.

General Motors was another riser after reports that the ­government was considering swapping $13.4bn debt for equity in a new, stripped-down version of the ­carmaker. Its shares gained 4.1 per cent to $1.78.