Results season start drags on cliff euphoria

US stocks fell yesterday, retreating from last week’s rally on the “fiscal cliff” deal in Washington, as companies started to report results for the fourth quarter. After a 4.3 per cent jump in the two sessions around the close of the fiscal cliff negotiations, the S&P has declined a bit, with investors finding few catalysts to extend the rally that took the benchmark to five-year highs.

Shares of AT&T dropped 1.7 per cent to $34.35 (£21.39), making it one of the biggest drags on the S&P 500, after the company said it sold more than 10m smartphones in the quarter.

This figure beat the same quarter in 2011, but also means increased costs for the wireless service provider. Providers like AT&T pay hefty subsidies to handset makers so that they can offer discounts to customers who commit to two-year contracts.

Fourth-quarter profits are expected to beat the previous quarter’s lackluster results, but analyst estimates are down sharply from October. Quarterly earnings are expected to grow by 2.7 per cent, according to Thomson Reuters data. Dow component Alcoa, the largest US aluminum producer, reported results after the closing bell.

The Dow Jones industrial average dropped 55.44 points, or 0.41 per cent, to 13,328.85. The Standard & Poor’s 500 Index fell 4.74 points, or 0.32 per cent, to 1,457.15. The Nasdaq Composite Index lost 7.01 points, or 0.23 per cent, to 3,091.81.

“The stark reality of uncertainty with regard to earnings, plus the negotiations on the debt ceiling, are there and that doesn't give investors a lot of reason to take bets on the long side,” Hellwig said.

With AT&T’s fall, the S&P telecom services index was the worst performer of the 10 major S&P sectors, down 2.7 per cent.

Sears Holdings shares dropped 6.4 per cent to $40.16 a day after the company said chairman Edward Lampert would take over as chief executive from Louis D’Ambrosio, who is stepping down due to a family member’s health issue. The US retailer also reported a 1.8 per cent decline in quarter-to-date sales at stores open at least a year.

Markets went lower as some of the first reported earnings were weak.

“It doesn’t seem to be bouncing back, it might stay here or sell off a little further,” said Stephen Carl, head of U.S. equity trading at The Williams Capital Group in New York.

Shares of restaurant-chain operator Yum Brands Inc fell 4.2 per cent to $65.04 a day after the KFC parent warned sales in China, its largest market, shrank more than expected in the fourth quarter.

GameStop was one of the worst performers on the S&P 500 as shares slumped 6.3 per cent to $23.19 after the video game retailer reported low customer traffic for the holiday season and cut its guidance.