Stocks Mixed on New Earnings Fears

The parade of big-name companies expected to disappoint in their third-quarter earnings reports lengthened further Tuesday, clipping blue-chip stocks overall.

But most small-stock indexes shook off early selling to close at record highs again, even as bond yields rose.

Shares of Aetna, Data General, Delta Air Lines and Micron Technology all slid as the companies either projected weaker-than-expected earnings or faced estimate cuts by analysts.

Blue-chip selling drove the Dow Jones industrials down 26.77 points to 7,970.06 and the Standard & Poor’s 500 index down 3.50 points to 951.93.

Delta tumbled $4.63 to $102.06 after the carrier warned that it wouldn’t meet Wall Street profit forecasts this quarter. It blamed airline fare wars.

Meanwhile, Micron slumped $3.44 to $37.06 despite issuing a seemingly robust profit report for the three months ended Aug. 28. Earnings nearly quadrupled from a year earlier, but they were still below forecasts because prices of dynamic random access memory chips, Micron’s main product, fell far more than most analysts expected during the quarter.

“The world has more DRAMs than it needs,” said analyst Tad LaFountain at Dominick & Dominick in New York.

Aetna tumbled $9.06 to $93.69 after Merrill Lynch analyst Margo Vignola shaved her earnings estimates for the company, citing sluggish revenue growth. Aetna had no comment.

Some analysts insist there have been no more than the usual amount of end-of-quarter earnings warnings in recent weeks and that the majority of companies still will report healthy profit growth for the quarter. But with share prices at or near record highs, there is no room for disappointment of any kind, said Ted Bridges, a money manager at Omaha-based Bridges Investment Counsel.

“The market is pretty expensive,” said Scott Black, president of Delphi Management Inc. “Even if you’re looking at tiny companies, there aren’t many cheap ones.”

Even so, investors continue to exhibit more confidence in smaller companies’ earnings growth: Smaller stocks have outperformed blue chips since May, and since early August the difference in performance has been striking.

The Russell 2,000 index of smaller stocks reversed a midday decline Tuesday to end up 0.44 point at a record 449.42. It has hit new highs each day for most of September and is up 24% year-to-date.

By contrast, the blue-chip Dow, while up 23.6% year-to-date, remains 3.5% below its record of 8,259 reached Aug. 6.

On Tuesday losers outnumbered winners by 16 to 13 on the New York Stock Exchange, but winners had a slight edge on Nasdaq, home of most smaller stocks.

Bonds provided little help for stocks overall Tuesday. Yields edged higher after a disappointing auction of new two-year Treasury notes, which sold at an average yield of 5.79%. The 30-year T-bond yield, meanwhile, rose to 6.38% from 6.35% on Monday.

The government will auction five-year T-notes today.

Among Tuesday’s highlights:

* Profit-takers zeroed in on some bank stocks, sending BankBoston down $2 to $89.69, Wells Fargo down $1.28 to $272.38 and BankAmerica down $1.88 to $73.94.

* Retailers also were broadly lower. Wal-Mart dropped $1.34 to $37.06, Dayton Hudson sank $1.25 to $63.50 and Federated was off $1.38 to $43.81.

* Airlines dropping with Delta included AMR, parent of American Airlines, down 31 cents to $115.44; UAL, parent of United, off $1.88 to $84.38; and Alaska Air, off $1.06 to $31.

* Other HMO shares falling with Aetna included PacifiCare A, down $2.81 to $66.88, and United Healthcare, down $1.56 to $52.50.

* Many tech shares were strong despite the Micron disappointment. Intel rose $2.75 to $99.13, Remedy gained $3 to $39.38 and Digital Equipment gained $1.56 to $42.50.

In Mexico City, stocks fell for the first time in five days on concern that a weakening peso could cut returns for foreign investors.

The Bolsa index lost 0.4% to 5,258.52 as the peso fell to 12.83 U.S. cents from an 11-month high of 12.94 cents Monday, after Mexico’s central bank said it might take short-term measures that could push the currency lower.

* Market Roundup, D10