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US Stocks Drop as Investors Assess Corporate Earnings

FILE – In this Monday, Aug. 8, 2011 file photo, a pedestrian walks past the New York Stock Exchange in New York. A weak batch of earnings reports is sending the stock market slightly lower in early trading Thursday, April 30, 2015. (AP Photo/Jin Lee, File) The Associated Press

Stocks logged their biggest drop in two weeks on Thursday as investors assessed some disappointing earnings news.

Harman International, which makes audio systems for cars, and Yelp, an online listings company, were among the companies that fell sharply after posting weak earnings.

The stock market has sagged this week after climbing to record levels on Friday.

While many investors remain optimistic that growth will resume later in the year that belief isn’t yet being backed up stronger economic data or good corporate earnings reports. A surge in the dollar in the first three months of the year is hurting company earnings for those that sell overseas, and a plunge in oil prices that lasted into January is hurting the energy sector.

“Until we see an improvement in earnings numbers … investors are kind of caught,” said Gina Martin Adams, an equity strategist at Wells Fargo Securities.

The Standard & Poor’s 500 index dropped 21.34 points, or 1 percent, 2,085.51. That was the biggest drop since April 17. The Dow Jones industrial average slipped 195.01 points, or 1.1 percent, to 17,840.52. The Nasdaq composite declined 82.22 points, or 1.6 percent, to 4,941.42.

Overall corporate earnings have come in better than analysts were expecting, but they are still much weaker than they were at the end of last year.

Companies in the S&P 500 are currently forecast to report average growth in earnings per share of just 0.6 percent for the first quarter, according to data from S&P Capital IQ. That compares with a growth rate of 7.8 percent in the fourth quarter of 2014.

Gains for stocks have slowed this year, as the market has entered the seventh year of a bull run. After Thursday’s losses, the S&P 500 index was up just 1.3 percent for the year and the Dow just 0.1 percent.

The market is struggling to push higher as stock valuations have climbed. The price-earnings ratio, a measure of how much investors are willing to pay for every $1 of earnings, is now just above 17. Three years ago it was 12.5.

“We’re treading water,” said Ron Sanchez, chief investment officer at Fiduciary Trust Company International. While he still recommends owning U.S. stocks, Sanchez says his expectations for returns are “much more modest” than at any time during the last three years.

Yelp was among the biggest losers on Thursday.

The stock plunged $11.89, or 23 percent, to $38.39 after it reported a loss of $1.3 million in its first quarter and gave a lower-than-expected revenue outlook late Wednesday. Yelp said the number of visitors to its desktop site fell as more users browsed on smartphones and tablets.

Harman International also dropped after reporting earnings that fell short of analysts’ estimates and lowered its own forecast for revenue and earnings. The company blamed the impact of the appreciating dollar and weaker growth. Its stock fell $9.82, or 7 percent, to $130.38.

The bond market steadied after a sell-off on Wednesday. The yield on the 10-year government Treasury note held at 2.04 percent. The yield on the note has been moving higher after dropping as low as 1.65 percent in January.

Oil rose nearly 2 percent Thursday and finished April with a gain of more than 20 percent. U.S. oil gained $1.05, or 1.8 percent, to $59.63 a barrel. Brent crude rose 94 cents to $66.78 a barrel. Analysts say recent reports showing fewer rigs drilling for oil in the U.S. and supplies leveling off are supporting higher prices.

In metals trading, gold dropped $27.60, or 3.3 percent, to $1,182.40 an ounce. Silver fell 54.6 cents, or 3.3 percent, to $16.12 an ounce. The price of copper rose 9.2 cents, or 3.3 percent, to $2.89 per pound.

The euro rose to $1.1240 from $1.1114 the day before. The dollar rose to 119.35 yen from 119.01 yen.

In other energy futures trading on the New York Mercantile Exchange:

— Wholesale gasoline gained 3.2 cents to $2.05 a gallon.

— Heating oil rose 2.8 cents to $1.976 a gallon.

— Natural gas rose 14.5 cents to $2.751 per 1,000 cubic feet.

Source: ABC News Money

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