Gloomy Profit Outlooks Push Stocks Lower
U.S. stocks sank Wednesday for a second day as a batch of companies said their earnings will fall short of estimates.
The warnings overwhelmed any positive effect on the market from the Federal Reserve Board’s decision to leave key lending rates unchanged. Instead, investors focused on the idea that earnings, especially at computer makers such as Apple Computer Inc. and Hewlett-Packard Co., may be weaker than forecast.
The Dow Jones industrial average fell 17.36 points to 5,703.02, more than halving an afternoon deficit of almost 38 points.
Broader indicators also improved after the Fed announced its decision not to slow the economy with a rate hike, but they still ended mostly lower.
“You’re losing the underpinning of the market,” said Ric Dillon, a money manager in charge of $110 million at his firm in Columbus, Ohio. “The bull market was a function of two things: strong earnings and declining interest rates. Earnings have stopped growing and interest rates have stopped declining. Given that, the market’s vulnerable.”
Bonds were little changed and notes gained after the Fed inaction, quelling concern that inflation will accelerate. Earlier, bonds had slipped after the Commerce Department reported that orders to U.S. factories jumped 1.9% in May, the third straight monthly advance.
On the New York Stock Exchange, declining issues outnumbered advancers by a 10-9 margin, and volume slowed considerably going into the holiday, totaling 334.57 million shares.
The NYSE’s composite index fell 0.64 point to 360.37, the Standard & Poor’s 500-stock index dropped 1.21 points to 672.40, but the American Stock Exchange’s market value index rose 0.09 point to 579.65.
The technology-heavy Nasdaq composite index fell 9.55 points to 1,181.60 after another stream of negative earnings projections concerning computer-related businesses.
Trading had continued at Tuesday’s cautious pace until late in the session, when the Fed concluded its two-day meeting.
The central bank’s decision to leave key lending rates alone had been expected by many economists, who argued that Fed officials want to see more information on the pace of inflation before taking action. Higher rates slow borrowing and spending, offsetting inflationary pressures in a strong economy but hurting corporate profits through higher operating costs and slower revenue growth.
The yield on the benchmark 30-year Treasury bond fell to 6.93% from Tuesday’s 6.94% following the Fed announcement. Even with rates where they are, investors remain concerned that the Fed will raise rates soon, Dillon said. The Fed’s Open Market Committee meets again next month.
Although the Fed’s inaction put some minds to rest, investors were forced to contend more bad news in technology.
Computer makers stumbled for a second day, after rallying in the previous three sessions. Companies that told investors profits won’t meet forecasts added to recent poor news from Digital Equipment and International Business Machines.
Auto stocks slid in the aftermath of flat sales reports by the Big Three auto makers. Combined, Ford, General Motors and Chrysler saw their sales fall 1% in June.
Among Wednesday’s highlights:
* Digital Equipment, down 1 1/2 to 38 1/4, added to the 5-point plunge of Tuesday. Hewlett-Packard fell 3 3/8 to 94 1/8 after an analyst reportedly downgraded the stock.
The same fate befell Sun Microsystems, down 1 7/8 at 57 on the Nasdaq market, which also saw several smaller tech concerns plunge on negative earnings outlooks. IBM dropped 1 1/2 to 98 1/2 and Dell Computer eased 7/8 to 48 7/8.
* Among the auto issues, Chrysler fell 3 5/8 to 59 7/8, Ford fell 1 5/8 to 31 7/8 and General Motors fell 1 5/8 to 52 1/8, the Dow’s biggest decliner.
* Union Pacific and Southern Pacific surged after federal regulators recommended approval of the companies’ merger plan. Union Pacific gained 5/8 to 72 3/4, Southern Pacific jumped 1 1/2 to 28 1/4, Burlington Northern Santa Fe rallied 1 7/8 to 86 1/4 and Norfolk Southern climbed 1/2 to 87 1/8.
Overseas, Tokyo’s Nikkei stock average rose 0.1%, Frankfurt’s DAX index fell 0.1%, and London’s FTSE-100 fell 0.3%.
Market Roundup, D5
