EUROPEAN stocks slipped after a seven-day rally pushed valuations on the Dow Jones Stoxx 600 Index to the highest in five years, overshadowing better-than estimated earnings from Apple Inc. and TomTom NV.
Lonza Group AG slid 3.1% after reporting a 55% drop in first-half profit. BHP Billiton Ltd. led raw- material shares lower as metals retreated. Apple advanced 4.2% and TomTom, Europe’s largest maker of car-navigation devices, surged 12%.
Europe’s Stoxx 600 lost 0.1% to 214.71 by noon trading in London. The measure is trading at 26 times the profit of its companies, the highest since January 2004 according to Bloomberg data, after climbing 8.9% since July 10 as results from Goldman Sachs Group Inc. to Johnson & Johnson and Coca-Cola Co. exceeded analysts’ predictions.
“It’s all got a little bit ahead of itself,” said Ian Williams, chief executive officer of Charteris Treasury Portfolio Managers Ltd., which oversees about 142 million. “There is the scope there for disappointment on the economic numbers as they unfold over the next month,” he told Bloomberg Television.
The Dow Jones Industrial Average capped its longest stretch of gains in two years yesterday as Caterpillar Inc.’s earnings tripled analyst estimates and Federal Reserve Chairman Ben S. Bernanke said there are signs the economy is stabilizing. Futures on the Standard & Poor’s 500 Index slipped 0.4% today. The MSCI Asia Pacific Index advanced 0.1%, rising for a seventh day in the longest stretch of gains since January.
Morgan Stanley advised investors to “sell into” the equities rally, saying “cyclical growth risks have diminished but not disappeared.”
“The key drivers behind improving sentiment, upside to near-term growth estimates and continued positive earnings momentum, may prove more transitory than the market believes,” New York-based strategist Jason Todd wrote in a report dated yesterday.
The VStoxx Index, which gauges the price paid for options to protect against fluctuations in the Euro Stoxx 50, advanced 1.8% to 28.02, a third day of gains.
Lonza sank 3.1% to 108 Swiss francs. The world’s biggest maker of ingredients for pharmaceuticals said first-half net income fell 55% to 120 million francs as orders from drugmakers slowed and costs from opening plants increased.
BHP Billiton, the world’s largest mining company, slid 2.9% to 1,486 pence. Kazakhmys Plc, Kazakhstan’s biggest copper mining company, declined 5% 718.5 pence. Copper, lead, nickel and tin declined in London.
Axa SA, Europe’s second-largest insurer, lost 2.7% to €13.57 as Cazenove cut its recommendation on the shares to “underperform” from “in-line.”
“Neither 2009 earnings nor valuation are likely to be a catalyst for the stock,” London-based analyst Andreas Van Embden wrote in a note to clients. “This is partly the result of low returns in the US businesses.”
Apple rose 4.2% to 157.89 in pre-market New York trading as price cuts attracted more first-time buyers for Macintosh personal computers. The maker of the iPhone reported third-quarter profit of 1.35 a share, surpassing the 1.17 estimated by analysts in a Bloomberg survey. Sales in the quarter ended June 27 rose to 8.34bn, topping estimates of 8.21bn.
Per-share earnings beat projections by an average of 13% for the 96 companies in the Standard & Poor’s 500 Index that reported quarterly results since July 8, according to data compiled by Bloomberg. Analysts forecast profits fell an average 33% in the second quarter and will decrease 20% from July through September, Bloomberg data show.
The earnings season “has been a positive surprise in so far as people were expecting the worst in the second quarter and the worst has not happened,” Hugh Young, a fund manager who helps oversee 35bn in equities for Aberdeen Asset Management Plc in Singapore, said in a Bloomberg Television interview.
TomTom jumped 12% to €7.04 after second-quarter net income of €19.9 million beat analysts’ forecasts for €15.5 million.
Tele2 AB, Sweden’s second-biggest telephone company, added 6.9% to 88.50 kronor after posting a second-quarter net income of 1.14bn kronor, compared with a loss of 54 million kronor a year earlier. Analysts had estimated profit of 945 million kronor, according to a Bloomberg survey.
GlaxoSmithKline Plc erased earlier losses and was unchanged at 1,160 pence after the UK’s largest drugmaker said second- quarter net income rose to £1.44bn from £1.29bn a year earlier.
