Stocks set for pullback on revenue worries

[July 20, 2010]  NEW YORK (AP) -- Stocks are set to pull back Tuesday as growing corporate profits don't seem to be enough to satisfy investors.

Technology companies IBM Corp. and Texas Instruments Inc. both reported a jump in earnings after the market closed Monday, but that did not relieve concerns investors have had about potential revenue growth.

Traders have not been focusing on bottom-line profits, but instead on revenue growth and forecasts for future improvement. That's because economic reports in recent months have shown the recovery is slowing, so there is concern about where future revenue growth will come from and how much it will eventually hurt profitability.

A report on the housing market due out later Tuesday is expected to show builders cut back on construction last month and applications for new construction also fell.

IBM's revenue came in short of analysts' forecasts because of a drop in the value of service contracts. It also said sluggish growth in Europe was affecting its revenue. Texas Instruments' revenue rose, but it disappointed as expectations grew for chipmakers following a blowout quarter from fellow Intel Corp.

Goldman Sachs Group Inc., Apple Inc. and Yahoo Inc. are among the companies reporting results Tuesday. Goldman's will be closely watched after big banks last week failed to impress investors. Again the concern is with potential revenue growth. For the financial sector, that takes on added importance because of uncertainty about how much banks will be restricted from trading by new financial regulation reform.

Ahead of the opening bell, Dow Jones industrial average futures fell 74, or 0.7 percent, to 9,986. Standard & Poor's 500 index futures dropped 8.40, or 0.8 percent, to 1,055.40, while Nasdaq 100 index futures fell 16.75, or 0.9 percent, to 1,788.75.

Economists polled by Thomson Reuters forecast housing construction fell 2.2 percent to a seasonally adjusted annual rate of 580,000 in June. Home construction has tailed off since a homebuyer tax credit expired at the end of April.

Investors initially dumped stocks following a report Monday showing homebuilders are pessimistic about future expansion. However, housing reports have largely been weak and expectations remain low for the sector that helped push the economy into recession.

The report is also expected to show that applications for building permits, a sign of future activity, fell 0.7 percent in June to an annual rate of 570,000.

The Commerce Department report is due out at 8:30 a.m. EDT.

Bond prices rose as investors opted for the perceived safety of government bonds. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.95 percent from 2.96 percent late Monday.

Overseas, Britain's FTSE 100 rose less than 0.1 percent, Germany's DAX index fell 0.2 percent, and France's CAC-40 fell 1 percent. Japan's Nikkei stock average fell 1.2 percent.

[Associated Press; By STEPHEN BERNARD]

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