Stocks Slide on Intel Report; Bond Yields Rise
Investors bristled at a disappointing earnings report from Intel and more signs of inflationary pressure, but stocks only slipped Wednesday as the overall flow of third-quarter profit reports remained encouraging.
The Dow Jones industrial average fell 38.31 points to 8,057.98 after nearly erasing an early 61-point drop twice during the session.
In the broader market, declining issues led advances 1,641 to 1,189 on active volume of 504.6 million shares on the New York Stock Exchange. The Nasdaq composite index was off 9.48 points at 1,723.31.
Broader stock measures also fell modestly as interest rates rose in the bond market after a stronger-than-expected reading on September’s retail sales fueled fears the Federal Reserve Board may slow the economy to guard against rapid inflation.
Even before the morning report, however, the market was bracing for a difficult session in the aftermath of late Tuesday’s third-quarter profit report from Intel.
The bellwether of the semiconductor industry reported a 21% increase in earnings compared with last year’s third-quarter, but the results came in slightly shy of many Wall Street forecasts.
Intel, which fell 5.13 to close at $86.69 as the most active Nasdaq issue, also cautioned that its fourth-quarter results won’t show much of an improvement from the third quarter.
“We have a continued uncertainty about earnings after Intel,” said Scott Bleier, chief market strategist at Prime Charter Limited. “We are on a cusp right now. We have had this Goldilocks economy but people are on the fence about what lies ahead, whether the economy is too strong or whether we’re going to have a great Christmas season.”
Meanwhile, stronger-than-expected retail sales in September sent the bond market lower on speculation that rising consumer spending could give the Federal Reserve a reason to raise interest rates.
The 30-year Treasury bond was down, raising its yield to 6.39% from Tuesday’s close of 6.35%.
Retail sales rose 0.3%, and excluding cars, sales were up 0.2%, exceeding economists’ forecast of an overall drop of 0.1%.
Retail sales represent about a third of the economy’s activity. While the economy is growing more slowly than earlier in the year, the data added to worries that the Fed may raise its short-term interest rates, slowing the pace of borrowing and spending, to ease inflationary pressures.
But analysts said they were also surprised at how well stocks held up overall under the Intel drubbing.
“I was really impressed, considering Intel and the strong retail sales. We could have been down 100 points or more this morning,” said Charles Payne of Wall Street Strategies.
Declining issues outnumbered advancers by a 7-to-5 margin on the New York Stock Exchange, where trading was heavy.
The Standard & Poor’s 500-stock list fell 4.56 to 965.72, the NYSE composite index fell 1.68 to 506.89, and the Nasdaq composite index fell 9.42 to 1,723.37.
The Russell 2000 index of smaller companies fell 1.23 to 462.74, the second straight drop for that high-flying measure.
The disappointment over Intel “would have been a good catalyst to drill the market,” said Rick Jandrain, chief investment officer for equity securities at Banc One Investment Advisors in Columbus, Ohio.
“We could have followed through with last week’s worries over Greenspan and inflation,” he said, referring to last Wednesday’s warning by Fed Chairman Alan Greenspan that inflationary pressures persist.
Jandrain and other analysts said the blow from Intel’s report was softened by the overall trend toward better-than-expected profits from other companies.
Even though they’ve contributed their share of robust reports, however, blue-chip shares still can’t seem to recapture the investor enthusiasm that’s been missing in that sector since early August.
Among Wednesday’s highlights:
* Of big-name companies reporting third-quarter results, Ford fell 44 cents to $49.13; Caterpillar, a Dow component, fell 75 cents to $60.
* Airline stocks jumped for a second day, helping limit the market’s decline, amid expectations that profits will surge. The AMEX Airline Index jumped 17.14, or 2.9%, to 613.42, its biggest one-day leap in five weeks.
American Airlines parent AMR jumped 94 cents to $119 after reporting better-than-expected earnings.
Delta Air Lines gained $2.31 to $106.94; UAL climbed $5.44 to $99.81; Continental Airlines rose $1 to $46.25 and US Airways Group jumped $1.63 to $49.44.
* Among computer-related shares following Intel’s lead: Microsoft fell 94 cents to $135.75, Lattice Semiconductor fell $2.44 to $59.94, Lam Research fell $1.13 to $42.63 and Applied Materials slid $1.81 to $49.06.
Dell Computer bucked the trend, rising $3.88 to $102.88, as did Compaq Computer, up $3.63 to $77.25.
In currency trading, the dollar stood at 1.7475 German marks late in New York, down from 1.7515 marks late Tuesday, and at 121.16 Japanese yen, down from 121.65.
Corn and wheat prices rose as speculators bought futures contracts on concern that the El Nino global weather pattern would hurt grain production in coming months.
At the Chicago Board of Trade, corn for December delivery closed 4 1/4 cents a bushel higher at $2.90 and wheat for December delivery rose 3 1/4 cents to $3.69 a bushel.
November soybeans closed 1 1/2 cents a bushel lower at $7.04.
Overseas, Tokyo’s Nikkei stock average rose 0.1%, Frankfurt’s DAX index fell 0.2% and London’s FTSE-100 fell 0.7%.
