Stocks Fall Broadly on Microsoft Warning
Wall Street’s hot 1998 rally ran into heavy selling Thursday, after software giant Microsoft warned that sales will be flat for the next few quarters.
Rising bond yields also continued to pressure stocks.
The Nasdaq market--which has led stocks’ advance in recent weeks--suffered the brunt of the profit-taking. The Nasdaq composite index slumped 36.22 points, or 1.9%, to 1,881.39.
By contrast, the Dow industrials lost 33.39 points, or 0.4%, to 9,143.33.
The market’s poor breadth told the real tale, analysts said: Losers outnumbered winners by 21 to 8 on the New York Stock Exchange and by 27 to 16 on Nasdaq.
While first-quarter corporate earnings reports thus far have, on balance, been better than analysts expected, Microsoft cautioned Wednesday that sales will be unchanged for at least six months, until Windows 98 and other new products kick in.
The company also cited Asia’s financial problems and a possible slowdown in computer sales.
Microsoft is famous for cautionary comments that turn out to be too conservative. Yet some investors are giving more credence to its forecasts this time.
“It would be unprecedented for a company its size to continue growing at the same rate,” said David Rolfe, chief investment officer at Wedgewood Partners, noting Microsoft’s 50% annualized earnings growth in recent years.
Microsoft slid $4.38 to $94.50 on Nasdaq, pulling many tech issues lower.
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Many analysts have been arguing that the bull market’s breakneck pace this year--with the Dow up 15.6% since Jan. 1--is simply unsustainable and that it was only a matter of time before something would trigger a 5% to 10% pullback in the broad market.
Whether that time is now, however, remains to be seen. But this week’s frenzy for small, speculative Internet-related stocks rang warning bells on Wall Street.
The bond market has also been making traders nervous. Long-term Treasury bond yields have edged up to three-week highs as heavy corporate bond issuance has pressured yields and as several Federal Reserve Board governors have warned in recent days that the central bank is worried the U.S. economy is growing too quickly.
Any Fed move to tighten credit could be devastating for the stock market.
On Thursday the 30-year Treasury bond yield once again flirted with the key 6% level. There were rumors Thursday that Wall Street investment guru Warren Buffett was selling bonds he had purchased last summer.
The T-bond ended at 5.98%, up from 5.96% on Wednesday and the highest since March 30.
Among Thursday’s highlights:
* Big-name tech issues pulling back included Dell Computer, down $2.19 to $75.25; Intel, down 81 cents to $83.25; and Seagate, down $1.13 to $27.69. But IBM rose $2.75 to $117.50.
And Compaq rose 38 cents to $28.88 after saying it plans to buy back as many as 100 million shares, or 6.7% of outstanding shares, as it tries to bolster investor confidence amid disappointing PC sales.
* Among tech firms reporting earnings, Quarterdeck fell 65 cents to $1.94 and Sybase slumped $2.06 to $8.31.
* Among blue chips, earnings data lifted Disney $1.69 to $123.69 and Procter & Gamble gained $2 to $86.
Other stocks moving on earnings news included AirTouch, up $1.94 to $54.44; Pulte Home, up $3.19 to $54; and Reebok, down $2 to $29.56.
* Financial stocks were broadly lower. American Express slid $2.94 to $103.06 and J.P. Morgan fell $5.25 to $137.38. The latter two had rallied Wednesday amid another wave of merger speculation.
* Utility stocks continued to slide, hurt by rising bond yields. The Dow utility average lost 1.2% to 281.92. It is down 3.2% from its recent peak.
Meanwhile, gold continued to inch higher. Some analysts also see that as a warning sign for stocks and bonds.
