MarketView for October 23

Summary

The major equity indexes fell sharply on Tuesday, driving the Dow Jones Industrial Average to its largest decline since June 21, as weak results from index members DuPont and United Technologies indicated a slowdown in earnings growth.

This earnings season has so far produced a string of disappointments from companies falling short of Wall Street's expectations. With results in from 29 percent of S&P 500 companies, 37 percent have exceeded revenue forecasts, far short of the 62 percent average, and just 57.2 percent of the S&P 500 names reporting so far have beaten earnings forecasts, according to Thomson Reuters data. That makes it the worst percentage of companies beating earnings estimates since the fourth quarter of 2001 - should it stay at the current level, the data showed.

DuPont's stock lost 9.1 percent to $45.25 after the chemical company reported lower-than-expected quarterly profit and announced 1,500 job cuts. The stock was responsible for a 33-point drag on the Dow, which ended down more than 240 points. Outlooks have been weak as well. DuPont, United Technologies and 3M all cut their outlooks on Tuesday. Shares of United Technologies were down 1 percent at $77.07, while 3M shares closed down 4.1 percent at $88.73.

Apple's CEO Tim Cook announced a smaller, cheaper tablet. Its 8-inch tablet is expected to compete in a market staked out by Amazon.com and Google. Apple shares fell 3.3 percent to $613.36.

After the bell, shares of Facebook rose 8.6 percent to $21.18 as the world's largest online social network company posted a 32 percent increase in third-quarter revenue. Facebook ended the regular session at $19.50, up 0.9 percent.

Shares of Netflix fell 16.5 percent to close at $57 in after-hours trading after it reported subscriber additions at the lower end of its forecast for the U.S. TV and movie streaming business. Netflix ended regular trading at $68.22, up 0.5 percent.

One outlier from the regular session was UPS, which gained 3 percent to $73.73 despite earnings that were viewed by some as disappointing.

Overall earnings for S&P 500 companies are expected to fall 2.5 percent in the third quarter from a year ago, Thomson Reuters data showed.

In a development reviving investors' worry about Europe, Moody's downgraded five key Spanish regions by one or two notches late on Monday, citing their limited cash reserves and forthcoming bond repayments.

Approximately 6.6 billion shares changed hands on the three major equity exchanges, compared with the year-to-date average daily closing volume of 6.52 billion shares.

The Apple Mini iPad Arrives

Apple announced on Tuesday that an 8-inch version of the iPad will go on sale on Friday to compete with Amazon 's Kindle and other smaller tablets, but it set a higher-than-expected price tag of $329 that Wall Street fears could curb demand. The 7.9 inch "iPad mini" marks the iPhone-maker's first foray into the smaller-tablet segment. Apple hopes to beat back incursions onto its home turf of consumer electronics hardware, while safeguarding its lead in a larger tablet.

Apple CEO Tim Cook and marketing chief Phil Schiller took the wraps off the new tablet, which essentially has most of the functions and features of the full-size iPad but in a smaller package. Priced at $329 for a Wi-Fi only model, the iPad mini is a little costlier than some predicted, but some analysts see that as a bid to retain premium pricing levels. Others fear the gadget will lure buyers away from Apple's $499 flagship 10-inch iPad, while proving ineffective in combating the threat of Amazon's $199 Kindle Fire and Google's Nexus 7, both of which are sold at or near cost.

The focus on growing competition was evident as Schiller - at the iPad mini's launch event, held in San Jose's California Theatre - compared the iPad mini with Google's popular 7-inch Nexus 7 tablet, citing feature by feature why the new Apple device was superior. It is unusual for Apple to single out a specific competitor in its product launches.

"Theirs is made of plastic," Schiller said, referring to the Android tablet. "The entire Android product is thicker and heavier." Schiller also defended Apple's pricing of the iPad mini, telling reporters he expects consumers to recognize quality and be willing to pay for it.

In a surprise move, Apple also announced a fourth-generation full-sized iPad just six months after unveiling a third generation device to much fanfare. The latest tablet, which again sells for $499, is faster and slimmer and comes just days before Microsoft is due to show off its own "Surface" tablet.

Finally, Apple unveiled a thinner MacBook Pro laptop series, including a 13-inch Retina display.

The iPad was launched in 2010 by late Apple visionary Steve Jobs and since then it has taken a big chunk out of PC sales, upending the industry and reinventing mobile computing with its apps-based model, often called an ecosystem.

A smaller tablet is the first device to be added to Apple's compact portfolio under Cook, who took over from Jobs just before his death a year ago.

"It's very cool," Cook said of the iPad mini. "We told you earlier this year you would see some incredible innovation from Apple across the year. We think we kept our promise."

In a rarity for a company that tightly controls events, Apple live-streamed its invitation-only presentation to Apple devices such as the iPad and Macintosh computers.

Surveys conducted ahead of Tuesday's news suggested some consumers had hoped for a more affordable Apple mini tablet.

Jobs famously derided the 7-inch screen, saying such a device should come with sandpaper so users can file down their fingers. But an internal email revealed during a patent trial showed he turned more favorable to the idea by early 2011.

Apple has sold 100 million iPads so far, with the device accounting for 26 percent of Apple's fiscal third-quarter revenue. However, the Street is concerned that there will be an erosion of Apple's industry leading margins as it takes on the Kindle Fire. It earned gross margins of 23 percent to 32 percent on U.S. iPad sales between October 2010 and the end of March 2012, according to a July court filing by Apple.

Apple's shares ended regular trading down 3.2 percent at $613.36, after gaining 4 percent on Monday in the run-up to the event.