Closing Bell: Unmoved by Earnings Reports, Markets Go Flat

APTOPIX Wall Street (Jonathan Corpina, left, talks with fellow trader Dan Ryan on the floor of the New York Stock Exchange, Frid
Richard Drew/AP
U.S. stocks were little changed Monday as investors found little in the latest batch of earnings reports to justify the market's recent rise to an all-time high. Still, the Standard & Poor's 500 index did manage to hit another record high.

The Dow Jones industrial average (^DJI) lost 7 points, or 0.1 percent, to 15,392, the Nasdaq composite index (^IXIC) rose 6 points, 0.2 percent, to 3,920, and the Standard & Poor's 500 index (^GPSC) edged up a fraction of a point, closing at 1,744.66 -- which was still enough to beat its previous high-water mark, set on Friday.

McDonald's (MCD) fell 60 cents, or 0.6 percent, to $94.60 after the world's biggest hamburger chain reported quarterly revenue that fell short of analyst expectations. The Oak Brook, Ill.-based company also warned that global sales at established restaurants would be relatively flat in October and signaled that weakness would continue in the fourth quarter amid stiff competition and a halting economic recovery. McDonald's, which has roughly seven times the sales of Wendy's (WEN) and Burger King Worldwide (BKW) combined, has been slower than its rivals in adapting to changing consumer demands.

Homebuilders slumped after Americans bought fewer previously occupied homes in September than the previous month, held back by higher mortgage rates and rising prices. %VIRTUAL-article-sponsoredlinks%The National Association of Realtors said that sales of resold homes fell 1.9 percent last month to a seasonally adjusted annual rate of 5.29 million. KB Home (KBH) fell 3.6 percent to $16.56, while D.R. Horton (DHI) dropped 1.9 percent to $18.66. Hovnanian Enterprises (HOV) lost 3 percent to $5.08 and Ryland Group (RYL) lost 3.1 percent to $38.78

In commodities trading, the price of oil dropped below $100 for the first time since early July after a government report showed that U.S. supplies continue to rise. Benchmark crude for November delivery ended the day at $99.17, down $1.64 for the day. Gold rose $1.30, or 0.1 percent, to $1,315.70 an ounce.

JPMorgan Chase (JPM) reached a tentative $13 billion deal with the U.S. government to settle investigations into bad mortgage loans sold to investors by JPMorgan and the banks it bought during the financial crisis. Shares were down 3 cents at $54.27.

More Stocks in the News:
  • Hasbro (HAS) surged after reporting that its net income rose 17 percent as sales increased. Its adjusted results and revenue topped analysts' estimates. The stock climbed $2.48, or 5.3 percent, to $49.72.
  • Halliburton (HAL) fell $1.81, or 3.5 percent to $50.66, after third quarter revenue fell below analyst expectations. The energy-services company reported third-quarter net income rose by 17 percent on strong revenue from its international operations, which offset sluggish growth in North America.
  • Goodyear Tire & Rubber (GT) slipped 6.7 percent to $21.12 after Deutsche Bank (DB) downgraded its rating on Goodyear to "Hold" from "Buy" and lowered its target price on the stock to $26 from $29 based on concerns about margins over the next few years.
  • Tellabs (TLAB) rose 4.7 percent to $2.46 after the communications equipment maker agreed to be acquired for $891 million by investment firm Marlin Equity Partners.
  • VF Corp. (VFC) rose 3.4 percent to $211.25 after its earnings beat analyst expectations.
  • Gannett (GCI), the media company that owns USA Today, fell 2.2 percent to $26.90 after the company reported lower earnings and revenue for the third quarter.
  • Osiris Therapeutics (OSIR) plunged 17 percent to $14.51 after the company said the Food and Drug Administration will treat its wound-care product Grafix as a drug. Osiris had maintained that it didn't need FDA approval for its products because they are derived from human cells.
  • Dean Foods (DF) rose 0.8 percent to $18.42 after a BMO Capital Markets analyst raised his rating on the stock to "Outperform" from "Market Perform" and boosted his target price for the dairy company's shares to $23 from $22.
What to Watch Tuesday:
  • The Labor Department releases U.S. job market data for September at 8:30 a.m. Eastern time. (The report, previously due Oct. 4, was delayed because of the partial government shutdown.)
These major companies are scheduled to release quarterly results:
  • Amgen (AMGN)
  • Coach (COH)
  • Delta Air Lines (DAL)
  • DuPont (DD)
  • Harley-Davidson (HOG)
  • Kimberly-Clark (KMB)
  • Lockheed Martin (LMT)
  • Panera Bread (PNRA)
  • Reynolds American (RAI)
  • Travelers (TRV)
  • Whirlpool (WHR)
-Compiled from staff and wire reports.

If You Only Know 5 Things About Investing, Make It These
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Closing Bell: Unmoved by Earnings Reports, Markets Go Flat

Warren Buffett is a great investor, but what makes him rich is that he's been a great investor for two thirds of a century. Of his current $60 billion net worth, $59.7 billion was added after his 50th birthday, and $57 billion came after his 60th. If Buffett started saving in his 30s and retired in his 60s, you would have never heard of him. His secret is time.

Most people don't start saving in meaningful amounts until a decade or two before retirement, which severely limits the power of compounding. That's unfortunate, and there's no way to fix it retroactively. It's a good reminder of how important it is to teach young people to start saving as soon as possible.

Future market returns will equal the dividend yield + earnings growth +/- change in the earnings multiple (valuations). That's really all there is to it.

The dividend yield we know: It's currently 2%. A reasonable guess of future earnings growth is 5% a year. What about the change in earnings multiples? That's totally unknowable.

Earnings multiples reflect people's feelings about the future. And there's just no way to know what people are going to think about the future in the future. How could you?

If someone said, "I think most people will be in a 10% better mood in the year 2023," we'd call them delusional. When someone does the same thing by projecting 10-year market returns, we call them analysts.

Someone who bought a low-cost S&P 500 index fund in 2003 earned a 97% return by the end of 2012. That's great! And they didn't need to know a thing about portfolio management, technical analysis, or suffer through a single segment of "The Lighting Round."

Meanwhile, the average equity market neutral fancy-pants hedge fund lost 4.7% of its value over the same period, according to data from Dow Jones Credit Suisse Hedge Fund Indices. The average long-short equity hedge fund produced a 96% total return -- still short of an index fund.

Investing is not like a computer: Simple and basic can be more powerful than complex and cutting-edge. And it's not like golf: The spectators have a pretty good chance of humbling the pros.

Most investors understand that stocks produce superior long-term returns, but at the cost of higher volatility. Yet every time -- every single time -- there's even a hint of volatility, the same cry is heard from the investing public: "What is going on?!"

Nine times out of ten, the correct answer is the same: Nothing is going on. This is just what stocks do.

Since 1900 the S&P 500 (^GSPC) has returned about 6% per year, but the average difference between any year's highest close and lowest close is 23%. Remember this the next time someone tries to explain why the market is up or down by a few percentage points. They are basically trying to explain why summer came after spring.

Someone once asked J.P. Morgan what the market will do. "It will fluctuate," he allegedly said. Truer words have never been spoken.

The vast majority of financial products are sold by people whose only interest in your wealth is the amount of fees they can sucker you out of.

You need no experience, credentials, or even common sense to be a financial pundit. Sadly, the louder and more bombastic a pundit is, the more attention he'll receive, even though it makes him more likely to be wrong.

This is perhaps the most important theory in finance. Until it is understood you stand a high chance of being bamboozled and misled at every corner.

"Everything else is cream cheese."
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