DealBook: Stocks Slump Following Weak Economic Data

Stocks & Bonds: Surge in Commodities Prices Helps End Slump on Wall St.

Mining companies and others dealing in commodities helped pull the stock market out of a three-day slump on Thursday.

News that China’s trade rebounded last month signaled the end of a six-month slowdown for the world’s biggest buyer of raw materials. The report drove prices up for copper and other commodities, and that helped lift Newmont Mining, Freeport-McMoRan and other stocks in the materials industry.

“The one thing that stands out today is the better news out of China,” said David Joy, the chief market strategist at Ameriprise Financial. “It comes as a pleasant surprise.”

The Standard & Poor’s 500-stock index edged up 6.57 points, or 0.4 percent, to 1,697.48.

The Dow Jones industrial average rose 27.65 points, or 0.2 percent, to 15,498.32. The Nasdaq composite gained 15.12 points, or 0.4 percent, to 3,669.12.

With little other news to drive trading, the stock market had meandered lower this week. The S.& P. 500 fell three days straight and remains down 0.7 percent for the week. It is still up 19 percent this year.

Brad McMillan, chief investment officer for Commonwealth Financial Network in Waltham, Mass., said a number of concerns weighed on the market this week. Comments from Federal Reserve officials have convinced many investors that the bank will begin pulling back its support for the economy in the coming months.

In an interview on CNBC after the market closed, Richard W. Fisher, head of the Fed’s Dallas branch, reaffirmed his view that it was time to wind down the bank’s stimulus effort.

At the same time, companies are warning of slower sales and turning in tepid second-quarter results. Mr. McMillan said it was starting to look as though corporate earnings had not kept up with the stock market’s strong pace this year.

“I think people are realizing that stock values are getting disconnected from earnings growth,” Mr. McMillan said. “For the rally to continue, people will have to pay more for earnings that aren’t growing that much.”

Investors are paying more for profits. A year ago, the price-earnings ratio for the S.& P. 500 was 13.4, according to the data provider FactSet. Now it is 15.6, which is still near the long-run average.

In other trading on Thursday, the better economic news out of China sent copper, widely used for electronics and to wire buildings, up 10 cents, or 3 percent, to $3.27 a pound. Gold rose $24.60, or 2 percent, to $1,309.90 an ounce.

In the bond market, the price of the 10-year Treasury note rose 10/32, to 93 1/32, while its yield fell to 2.59 percent, from 2.60 late Wednesday.

Google Stumbles as Slump in Ad Rates Deepens

SAN FRANCISCO — Google views the computing shift to smartphones and tablets as a golden opportunity, but the Internet search leader's second-quarter performance served as an unsettling reminder that it poses a nagging financial challenge, too.

The report released Thursday showed Google's average ad rate fell from the previous year for the seventh consecutive quarter. In an unexpected turn, the decline deepened for the first time in a year.

The average ad rate, or "cost per click," fell 6 percent during the three months ending in June. The magnitude of the declines had eased in each of the previous three quarters, raising hopes that the worse was over. Instead, things deteriorated from the 4 percent decline in ad rates during the first three months of the year.

The regression undercut Google's earnings and revenue. Both fell below analyst forecasts, spooking some investors. Google's shares fell $37.18, or 4 percent, to $873.50 in extended trading after the results came out.

Other unwelcomed developments also loomed over the quarter.

Excluding the costs of stock given to employees, Google's operating expenses climbed 27 percent from last year to $4.25 billion. That increase renewed concerns that Google is pouring too much money on far-flung projects, such as the development of driverless cars and balloons equipped with Internet-beaming antennas, instead of focusing on its main business of Internet search and advertising.

Motorola Mobility, a slumping cellphone maker that Google bought for $12.4 billion 14 months ago, also remains a headache. The subsidiary lost $342 million in the latest quarter, widening from $199 million a year earlier, when Google owned Motorola for only part of the reporting period. Motorola now has lost a total of $1.7 billion under Google's ownership, despite layoffs and divestitures that have whittled Motorola's workforce to 4,600 people, down from 20,300 at the same time last year.

Although he wouldn't forecast when Motorola might start making money, Google CEO Larry Page told analysts on a Thursday conference call that he is excited about the upcoming release of a new phone called Moto X. Page provided no further details about the phone, which he and other Google employees have been testing.

If Google backs the Moto X with an expensive marketing blitz, it would drive up the company's expenses again later this year.

Mobile ads, though, were the biggest issue on investors' minds.

Although the problem isn't as severe as at other companies, including computer makers such as Dell Inc. and Hewlett-Packard Co., Google is still having trouble navigating a technological transition driving more online activity on to smartphones and tablets. Those devices pose a financial challenge for Google Inc. because their smaller screen sizes fetch lower ad rates than the marketing pitches made on traditional desktop and laptop computers.

Google is in a far better position to prosper from mobile computing because it makes Android, the most widely used operating system on smartphones. The software also is gaining traction on tablets challenging Apple's pace-setting iPad. Google is expected to unveil the next generation of its Nexus tablets running on Android next week.

Android typically features Google's search engine and other services, such as maps and Gmail, giving the Mountain View, Calif., company more opportunities to show ads.

Now, Google is taking steps to persuade advertisers to pay higher prices to connect with consumers on mobile devices at times when they appear to be mulling a purchase or may be in a merchant's neighborhood.

Google is trying to drive up prices more quickly by changing the way it sells ads to prod more marketers into buying spots on mobile devices at the same time they plan campaigns aimed at PCs. About 6 million advertisers have already switched to Google's new pricing system. All marketers will be forced to adopt the new approach, known as "enhanced campaigns," by the end of the month.

In Thursday's conference call, Page described the switch to enhanced campaigns as the biggest change that Google has ever made to an online advertising platform launched more than a decade ago.

"I think we're still in the very, very early stages of that," Page said. "We changed a tremendous amount for how our teams operate, how our advertisers operate, how everyone buys those ads, what the users see, and we've done it pretty well."

Wedbush Securities analyst Shyam Patil said he believes Google is headed in the right direction in mobile advertising, despite the second-quarter slip in price.

"They are going to come up with the right solution, although now I am not sure if it is going to happen this year," he said. Patil also said he expects Google's stock to rebound quickly because too many investors believe the company's remains among the best bets in technology.

Google earned $3.2 billion, or $9.54 per share, in the second quarter up 16 percent from $2.8 billion, or $8.42 per share, a year earlier.

If not for the costs of employee stock compensation and charges tied to Motorola, Google said it would have earned $9.56 per share. That missed the average target of $10.80 per share among analysts surveyed by FactSet.

Revenue rose 19 percent to $14.1 billion, from $11.8 billion.

After subtracting Google's ad commissions, revenue stood at $11.1 billion — about $275 million below analyst projections.

Advertising: Sophomore Slump Afflicts Once-Promising TV ShowsDarren Michaels/Warner Brothers Television

Even with increased competition from cable television and online entertainment, networks could always count on new hits to be their strongest line of defense. And for decades the best thing about these new shows was that they continued to get stronger in their second season.

But in the television season about to end, some of the most popular new shows from a year ago have not built on their initial success — and in fact have wound up in premature decline.

The excitement that surrounded the introduction, in fall 2011, of comedies like “New Girl” on the Fox network, “Two Broke Girls” on CBS, and “Last Man Standing” on ABC, and the family-friendly drama “Once Upon a Time” on ABC, largely fizzled in season two, as their ratings fell.

That does not include the calamitous plunge for more marginal shows, like NBC’s “Smash,” which lost half its audience this year and was canceled last Friday.

“It’s something new for breakout hit shows to be down in their second year,” said Warren Littlefield, who put a generation of hits, including “Seinfeld” and “Friends,” on NBC when he led its entertainment division in the 1990s. “And yes, it’s alarming.”

Monday is the start of what is known as upfront week in New York, when the networks show off their new programming to advertisers. In the last few days, the networks announced the new shows they have ordered, and their message was unmistakable: We need new hits — a lot of them.

The four major networks will present a total of at least 41 new series next season, surely among the most to be introduced in one season. And they are not finished; other shows are expected to be announced within weeks.

Hit shows that gather momentum in their second seasons can create a cash cow that will produce revenue for years, even decades. Many shows that later emerged as cultural touchstones were helped by a jump in ratings in their second seasons, including “The X-Files,” “C.S.I.” and “The Simpsons.”

Not every new show last season faltered. The CBS drama “Person of Interest” grew, and ABC’s “Scandal” has caught fire this season. But most have skidded, for a variety of reasons.

Executives say one factor in the downturn for second-year shows has been the across-the-board ratings drop afflicting the industry. Every network is down in the category most closely watched by advertisers — viewers ages 18 through 49 — by margins ranging from 3 percent for CBS to 21 percent for Fox.

“Obviously, this has just been a terrible year for network television,” said Brad Adgate, the senior vice president for research at Horizon Media, a media buying company. “And it means this pilot season is the most important for the networks that I can remember.”

But there are other reasons. Anne Sweeney, the president of the Disney-ABC Television Group, pointed to changes in the content. “Each of those shows had different issues,” she said, referring to the slumping series. “Creative choices were made that impacted how viewers felt about them.”

Mr. Adgate said too much was asked of some of the new hits, such as counting on them to prop up whole nights. “In the case of ‘Two Broke Girls,’ I think CBS asked it to be a linchpin show,” he said. “It’s not a linchpin show yet, like ‘Big Bang Theory.’ ”

This season CBS moved “Two Broke Girls” to Mondays at 9 p.m., the so called tent-pole spot for that night. Even with delayed viewing counted, it is down almost a million viewers among the 18-to-49 group.

Mr. Adgate also cited the sweeping, often disruptive, issues network programmers face. “You have the competition from cable,” he said. “And now streaming video. And you have young people turning off their TVs. How can a show grow in that environment?”