FINANCIAL MARKETS : Stocks Fall a 3rd Day on Earnings Fear
U.S. stocks fell for a third day as concern about the pace of earnings growth battered auto, paper and chemicals shares. Semiconductor issues dropped amid expectations for lower computer chip prices.
The Dow Jones industrial average ended 9.03 points lower at 4,740.67 after losing a total of 40 points on Tuesday and Monday. The technology-weighted Nasdaq composite index fell 18.18 points to 1,002.27.
Declining issues led advancers by about 7 to 4 on the Big Board. Volume was moderately heavy at 339.34 million shares, despite the observance of Yom Kippur, the Jewish Day of Atonement.
“It’s a split tape, a split market,” said Joseph DeMarco, the top stock trader at HSBC Asset Management America. “People seem to be rotating out of the economically sensitive issues into the more defensive names, like drugs, utilities and beverages. I think the basis for that is concern about a mixed read on the economy and the potential for some earnings disappointments in the third quarter.”
The trend toward more conservatism intensified even in the face of upbeat data on the economy. The Commerce Department said factory orders jumped 2.6% in August after experiencing a revised 1% decline in July. Orders had been expected to be flat.
Neither that report nor a rebound in the index of leading economic indicators had a major effect on the bond market, but news of lower car sales helped raise yields at the end of the day. The 30-year Treasury bond yield fell 0.02 percentage point to 6.43% on Wednesday. Computer stocks have been volatile and subject to profit taking for a few weeks, but the catalyst for the selling on Wednesday came when SoundView Financial Group, a Stamford, Conn., investment firm, downgraded five semiconductor issues to “hold” from “buy.”
SoundView lowered LSI Logic, which fell 6 3/4 to 49 7/8; National Semiconductor, down 1 3/4 to 25; Zelig, off 1 to 40; Integrated Device Technology, which fell 2 1/8 to 20 3/4, and VLSI Technology, down 3 1/8 to 28 5/8.
SoundView said a drop of back orders could force microchip prices lower, although analyst Rick Wittington, who issued the downgrades, said that might eventually work to the advantage of companies that buy chips, such as mainframe and personal computer makers. SoundView remains bullish on computer stocks in general, Wittington said.
Among market highlights:
* Investors shed cyclical stocks--i.e., those that tend to respond sharply to changes in economic outlook. Ford Motor, for example, slipped 3/4 to 29 3/4 after the car maker said it recorded its first sales decline of the year in September. Since the beginning of September, the Standard & Poor’s auto index is down 6.6%, whereas the S&P; 500 is up 3.1%.
* A move out of so-called cyclical industries such as autos was partly offset by gains in food, consumer products and beverage issues--companies whose earnings don’t fall much in an economic slowdown. Among the gainers, American Home Products rose 2 3/8 to 88 3/8, Merck was up 1 3/8 to 59 3/8 and PepsiCo gained 1 3/8 to 53 3/8.
* Apple Computer lost 1 1/4 to 36 3/8 on news that its Chief Financial Officer Joseph Graziano will leave the company by year-end “due to differences” with Chief Executive Michael Spindler.
* Banking stocks rose on the premise that if the economy sours, interest rates should stay manageable. Chemical Banking shares rose 2 1/8 to 62 3/4.
* One cyclical stock bucked the tide to end up higher. UAL rose 1 7/8 to 168 1/2 after the parent of United Airlines said third-quarter earnings should exceed last year’s $6.86 per share and analysts’ predictions of $8.39 per share.
The dollar eased as traders scaled back expectations of strong support for the currency from Group of Seven officials meeting this weekend.
“There is a growing sense that they are not going to come out and say anything that will have a tremendous impact on the dollar, so we have seen a little bit of scaling back and selling ahead of the meeting this weekend,” said John McCarthy, manager of foreign exchange for ING Capital Markets in New York. In late New York trading, the dollar was at 100.95 Japanese yen, down from 101.35 yen late Tuesday. The dollar stood at 1.4340 German marks, down from 1.4361 marks late Tuesday.
Overseas stock markets, meanwhile, ended mostly higher. The Nikkei 225-share average in Tokyo inched 0.01% higher, while the FTSE-100 in London rose 0.56% and Frankfurt’s DAX index added 0.58%.
European stocks gained after the German central bank cut its overnight discount rate.
On commodity markets, gasoline prices sank further to nine-month lows Wednesday on news of increasing supplies and Hurricane Opal’s reduced threat to Gulf Coast refineries.
