The Clinton Herald, Clinton, Iowa

Business & Technology

May 7, 2014

Stocks drop on mixed earnings; Twitter plunges

Eds: Full version. Updates throughout with close of trading. With AP Photos.

NEW YORK (AP) — U.S. stocks fell broadly on Tuesday as investors found little to cheer in corporate earnings reports. A plunge in Twitter led Internet companies sharply lower.

Twitter dropped 18 percent after company insiders were allowed to sell stock for the first time since the initial public offering last year. Netflix fell 5 percent, Facebook and Amazon, 4 percent each, and Google, 2 percent.

Nine of the ten industry groups in the Standard and Poor's 500 fell, led by a 1.4 percent drop in financial companies after results for insurer American International Group fell short of analysts' expectations. Home builder stocks dropped after more signs of weakness in the housing market.

Jack Ablin, chief investment officer of BMO Private bank, says investors are worried that corporate results over the next few quarters will not justify the surge in prices from the start of 2013.

"We ran ahead of fundamental valuations, based on revenue and earnings," Ablin said. "Either revenue or earnings have to catch up to the market, or prices have to come down."

The S&P 500 dropped 16.94 points, or 0.9 percent, to 1,867.72. The Dow Jones industrial average fell 129.53 points, or 0.8 percent, to 16,401.02. The Nasdaq composite dropped 57.30 points, or 1.4 percent, to 4,080.76.

Even utilities — the biggest winners so far this year, up 12 percent — did not escape the selling. They slipped 0.5 percent.

The drop in the S&P 500 and the Dow Jones industrial average was the third in four trading days, and comes despite recent upbeat news on the U.S. economy. Payrolls increased by 288,000 last month, the fastest pace since 2012.

Steven Ricchiuto, chief economist of Mizuho Securities, noted that, for all the job gains, wages for U.S. workers have not increased significantly, and that is holding back consumer spending.

"People are getting weary of the 'things-are-getting-better' story," said Steven Ricchiuto, chief economist of Mizuho Securities. "We're hiring more workers, but we're not paying them more."

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