US stocks tumbled yesterday on caution ahead of corporate results, as mounting negative pre-announcements left a lacklustre profit growth outlook.
Wall Street has seen a slow start to the year following a gangbusters 2013. After the S&P 500’s jump of almost 30 per cent last year, its forward price-to-earnings ratio is the highest in nearly seven years and investors are weighing the risk of paying such a high premium for earnings that may see growth stall.
Almost 10 out of every 11 earnings pre-announcements for the current earnings season from S&P 500 companies have lowered estimates, according to Thomson Reuters data.
Various companies that posted weak earnings or forecasts on Monday, including SodaStream, Lululemon Athletica, Express and Aaron’s saw their stocks hit hard.
The Dow Jones industrial average fell 179.11 points or 1.09 per cent, to 16,257.94, the S&P 500 lost 23.17 points or 1.26 per cent, to 1,819.2 and the Nasdaq Composite dropped 61.36 points or 1.47 per cent, to 4,113.304.
Wendy’s outlook was a bright spot, sending shares up 6.4 per cent to $8.98 after the fast-food restaurant chain estimated adjusted quarterly earnings above analysts’ expectations.
In merger news, Beam agreed to be acquired by Suntory Holdings for $16bn, including debt.
After the closing bell, Google agreed to acquire Nest Labs for $3.2bn in cash. Google shares edged 0.6 per cent higher in after market trade.