Markets mixed as Europe’s troubles threaten U.S. earnings

NEW YORK — The Dow Jones industrial average crept lower Wednesday as Europe edged closer to a recession that would hurt corporate profits in the U.S.

The first earnings reports from American companies didn’t add much encouragement.

Germany reported that its economy, the largest in Europe, shrank slightly at the end of last year. And the European Union revised its figures for economic growth in the third quarter to 0.1%, its slowest pace in more than two years.

“Europe is still the main risk,” said Jeffrey Kleintop, chief market strategist at LPL Financial. “Yes, they’ve been making progress on their budgets, but they clearly have growth problems.”

The Dow dropped 13.02 points, or 0.1%, to close at 12,449.45.

The U.S. depends on Europe to buy about 20% of its exports, and concerns about Europe have led analysts to reduce profit estimates for U.S. companies. Profits at S&P 500 companies are expected to rise 7.2% for the last three months of 2011, says Standard & Poor’s Capital IQ. That’s lower than the 17.6% growth reported in the third quarter.

Judging by the S&P 500 index, investors seem to think earnings could fall much further, Kleintop said. The index is trading at about 13 times the past year’s earnings of its companies — near what it was at the end of 1990, when the economy was in recession. Earnings fell 20% in that downturn.

The S&P 500 gained 0.4 of a point on Wednesday to 1292.48. The Nasdaq composite rose 8.26 points, or 0.3%, to 2710.76. The Nasdaq has gained 4.1% this year. The Dow is up 1.9%, the S&P 2.8%.

Highlights:

Supervalu, a grocery store operator, plunged 13% after reporting a wider-than-expected quarterly loss because of high food prices and costs related to a turnaround plan.

-Orange juice prices fell. They hit their highest levels since 2007 on Tuesday when the government said that a potentially harmful fungicide had been found in Brazilian imports. The futures contract for orange juice fell to $1.88 Wednesday from $2.08 but is still up 14% since Dec. 21.

-Urban Outfitters dropped 19%, following the resignation of its CEO, Glen Senk. The company, which also runs the Anthropologie and Free People stores, said last week that tough competition and a drive to reduce inventory led to more markdowns than expected during the holiday shopping season.

-Lennar rose 7.2%. It said quarterly earnings fell but said the housing market is starting to stabilize with the help of lower home prices and low interest rates.