Worry About Tech Earnings Nails Nasdaq
U.S. stocks retreated for a second session as concern grew that earnings to be reported by technology companies this week will show waning demand for computer-related products.
“Rumors are flying that they are not going to meet their numbers,” said Glenn Parker, head of Nasdaq trading at Hambrecht & Quist in San Francisco.
The Nasdaq composite index, home to many major technology companies, tumbled 19.63 points to 988.60, its biggest drop since a 33.55-point slide last Wednesday. The Dow Jones industrial average slid 17.34 points to 5043.78.
Last year, the majority of computer chip and personal computer makers consistently posted stellar earnings, quarter after quarter. “Now, investors keep hearing reports that computer sales are slowing down,” said John Swinford, a money manager at Raborn & Co. in Delray Beach, Fla., which oversees $140 million. “There are a lot of nervous Nellies out there.”
With the bond market, banks and most government offices closed for Martin Luther King Day, investors had little to focus on but worries about the impending slew of earnings reports.
Technology stocks, which stumbled badly last week, continued to undermine the broader market.
“Technology was one of the main sources of upside fuel for this market for almost two years,” said Ralph Bloch, chief market analyst at Raymond James & Associates in St. Petersburg, Fla. “This weakness is so pervasive that it’s clearly starting to spill over into other areas.”
Last week, Motorola posted a surprising 16% decline in fourth-quarter profits, and Apple Computer forecast a larger-than-expected loss, prompting worries about this week’s major earnings reports, which start Tuesday afternoon with chip makers Intel and Sun Microsystems.
Unsettling hints of weakness also emerged from other sectors last week, as Aluminum Co. of America reported disappointing earnings and Dial confirmed concerns about weak consumer products sales.
“There’s already been a rash of negative surprises,” said Larry Wachtel, market analyst at Prudential Securities. “Last year’s gains were based on the assumption of economic improvement, and these earnings aren’t validating that assumption.”
Intel fell 3 1/4 to 53 3/8. Micron Technology led the New York Stock Exchange’s most-active list Monday, losing 2 1/8 to 30 7/8 as investment firm assessments of the chip industry continued to deteriorate. IBM, which will report its earnings Thursday afternoon, fell 3 1/4 to 83 1/8. In other trading, Motorola lost 1 to 48 3/8, Texas Instruments lost 1 to 44 3/4, and Compaq Computer lost 2 to 44.
On Monday, PaineWebber Inc. cut its 1996 earnings estimate for Dell Computer. The stock fell 3 1/4 to 25 3/8.
Among market highlights:
* Big drug makers, considered somewhat reliable even in a weak market, rose as investors moved to insulate themselves against possible earnings disappointments. Merck gained 1 1/2 to 63 5/8, Johnson & Johnson rose 3/4 to 86 1/2 and Pharmacia Upjohn gained 1/2 to 37 1/2.
* Kmart shares declined again, shedding 3/8 to 6 5/8. On Friday, Standard & Poor’s downgraded the troubled retailer’s bond rating to junk status, saying Kmart had lost significant market share to more efficient and profitable discounters.
* Federal Express, down 1 at 72, cited the effect of severe winter weather on its delivery service as it warned that fiscal third-quarter earnings will be significantly below analysts’ estimates.
* Dial, down 1 1/4 to 28 3/4, blamed a drop in fourth-quarter sales of consumer products.
Overseas, stocks ended mixed in Frankfurt, but the blue-chip DAX index hit its second record high in as many sessions. London’s FTSE-100 ended higher. Financial markets were closed in Tokyo for a national holiday.
Cocoa prices jumped to their highest level in four weeks Monday after shipments of beans from Ivory Coast, the world’s biggest producer, began winding down.
Traders said that Ivory Coast and other West African cocoa growers, who produced a bumper crop this year, have already sold the bulk of their harvests.
Cocoa for March delivery jumped $30 to $1,286 a metric ton, rebounding from a low of $1,240 at the Coffee, Sugar and Cocoa Exchange in New York.
Market Roundup, D8
