Markets flat amid muted reaction to positive U.S. growth data, Apple earnings miss

The Canadian dollar was down 0.41 of a cent to 100.2 cents US.

Data showed the U.S. economy expanded at a two per cent annual rate during the July-September quarter, with lift provided by higher consumer spending and a burst of government spending.

The showing was better than the 1.8% pace that had been expected and an improvement from the 1.3% pace recorded for the second quarter.

U.S. markets were little changed as Apple missed Wall Street earnings expectations for the second straight quarter, as iPad sales fell short of analyst forecasts. Net income in the fiscal fourth quarter was US$8.2 billion, or $8.67 per share. That was up 24% from $6.6 billion, or $7.05 per share, a year ago.

Analysts were expecting earnings of $8.84 per share. Revenue was up 27% from a year ago to $36 billion, against expectations of $35.8 billion. The stock was down 0.9%.

“For investors this stock still has a very solid growth profile and if you look at the valuations, it’s still trading at a reasonable valuation,” said Jennifer Dowty, portfolio manager at Manulife Asset Management.

“The margins were lower but they’re ramping up all the new product introductions and the expectation is over time, as their manufacturing costs come down from these new product launches, the margins will improve. Things with this company are not falling apart.”

The Dow Jones industrials edged up 3.53 points to 13,107.21, the Nasdaq composite was up 1.83 points to 2,987.95 and the S&P 500 index dipped 1.03 points to 1,411.94.

However, the GDP report was hardly unalloyed good news as “it was the U.S. government, rather than the consumer, that came to the rescue of an ailing economy in Q3 with a marked increase in federal spending contributing around 0.7 percentage points to the two per cent rate of overall GDP growth,” observed CIBC World Markets economist Andrew Grantham.

“Such growth in government spending is unlikely to continue no matter who wins the upcoming presidential election.”

North American markets ended the week lower as a string of earnings disappointments from big multinationals over the past week, including McDonald’s, General Electric and 3M, have reminded investors of the fragile state of the global economy.

“Corporate earnings reports continue to be an issue,” said BMO Capital Markets senior economist Robert Kavcic.

“And let’s just say that forward guidance has been uninspiring at best, especially in cyclical sectors such as industrials and materials.”

The TSX ended the week down 0.93% while the Dow industrials fell 1.77%.

TSX strength came from defensive sectors such as utilities, telecoms and consumer stocks.

The telecom sector gained 0.8% with Telus Corp. (TSX:T) ahead 89 cents to C$63.31.

The utilities sector gained 0.74% as power generator TransAlta Corp. (TSX:TA) said Friday that net income attributable to common shareholders in the third quarter was $56 million or 24 cents per diluted share. That compared with $50 million or 22 cents per share in the same 2011 period. Revenue fell to $538 million from $629 million and its shares gained 49 cents to $15.71.

TransAlta also announced it has a new strategic partnership with U.S. company MidAmerican Energy Holdings Co. The two will work together to develop, build and operate new natural gas-fired electricity generation projects in Canada.

The consumer staples sector inched up 0.1% as food company Saputo Inc. (TSX:SAP) rose 37 cents to $43.73.

The gold sector was down about 0.25% while December bullion slipped $1.10 to US$1,711.90 an ounce while Argonaut Gold (TSX:AR) climbed 19 cents to C$10.43.

Eldorado Gold Corp. (TSX:ELD) said its profits attributable to shareholders fell by 26% to US$75.8 million in the third quarter on lower volumes and prices of gold sold. The Vancouver-based gold miner is maintaining its guidance to sell 660,000 ounces of gold at cash operating costs of about US$465 per ounce this year and its shares edged 13 cents lower to C$13.91.

The financial sector was little changed as Moody’s Investors Service placed the long-term ratings of six Canadian banks on review for a possible downgrade due in part to risks related to high levels of consumer debt and housing prices.

The debt rating agency put Bank of Montreal (TSX:BMO), Bank of Nova Scotia (TSX:BNS), Caisse Centrale Desjardins, CIBC (TSX:CM), National Bank of Canada (TSX:NA) and Toronto-Dominion Bank (TSX:TD) under review. The stocks of all five of the TSX-listed banks finished the session positive, except TD which was down eight cents to $81.17. Royal Bank (TSX:RY), Canada’s largest bank, was not included on the list and its shares slipped eight cents to $56.83.

On Thursday after the close, financial services company Fairfax Financial Holdings Ltd. (TSX:FFH) reported that its third-quarter profits plummeted more than 96% to $34.6 million or 90 cents a share as it faced losses on its equity hedges. Its shares were $7.79 lower at $361.98.

The energy sector was 0.24% lower while oil prices closed slightly higher following the release of the GDP report with the December crude contract on the New York Mercantile Exchange up 23 cents to US$86.28 a barrel. Crude fell 4.6% this week amid data showing much higher than expected inventories. Canadian Natural Resources (TSX:CNQ) gave back 23 cents to C$29.70.

The base metals sector was the biggest TSX drag, down 1.1% as December copper reversing early gains and was unchanged at US$3.55 a pound. Copper, viewed as an economic barometer, has tumbled almost 20 cents in the past week on worries about a slowing global economy. Teck Resources (TSX:TCK.B) lost 69 cents to C$31.04.