One stock. One quarterly earnings miss. A big, big mess.
If investors were already on edge about the first quarter, and whether companies would live up to reduced earnings expectations, they must be shaking after General Electric Co. missed the consensus estimate by all of 7 cents (U.S.) a share in its first-quarter results and brought global indexes to their knees.
The Dow Jones industrial average closed at 12,325.42, down 256.56 or 2 per cent - its biggest one-day retreat since March 19. GE bore the worst of the selloff, falling 12.8 per cent, accounting for 38 points in the decline. But the downturn was widespread, with 29 of the 30 member stocks falling. Intel Corp. fell 3.8 per cent and Microsoft Corp. fell 2.9 per cent. Wal-Mart Stores Inc., the lone winner, rose just 0.3 per cent.
As Bespoke Investment Group pointed out on its Think B.I.G. blog, it would have been a lot worse for the blue chip index if the offending stock had been International Business Machines Corp. instead of GE. That's because the Dow weights stocks based on their actual price rather than the company's market capitalization.
GE's share price was just $36.75 as of Thursday's close, making it a relative lightweight on the index. On the other hand, IBM's share price was $118.78, the highest on the index. So, if IBM had tumbled 12 per cent on Friday, it alone would have blown a 117-point hole in the Dow. (IBM, by the way, reports its quarterly results on Wednesday.) The broader S&P 500 closed at 1332.83, down 27.72 points or 2 per cent.
In Canada, the S&P/TSX composite index closed at 13,683.03, down 226.55 points or 1.6 per cent. No sector was spared: financials, materials, energy and information technology were all whacked, demonstrating GE's incredible reach.
Research In Motion Ltd. fell 3.8 per cent, Suncor Energy Inc. fell 2.8 per cent, Manulife Financial Corp. fell 2.4 per cent and Bank of Nova Scotia fell 2.6 per cent.
"The stock market may be entering a mine field as earnings start to flood the tape next week," said the Big Picture blog. "We shall soon see if investors are getting real about earnings. GE proves that the economic slowdown is directly impacting corporate America."