Earnings, ‘Warning’ Spook Investors Again
U.S. stocks closed broadly lower for a second day Wednesday amid a slew of disappointing corporate earnings and Federal Reserve Board Chairman Alan Greenspan’s warning that a market correction is inevitable.
Meanwhile, the dollar continued to rise on doubts that the election of a new prime minister in Japan will prompt faster economic reforms.
The Dow Jones industrial average ended down 61.28 points, or almost 0.7%, at 9,128.91 after partly recovering from a loss of 115 points.
The Dow had slumped 105 points Tuesday, its biggest loss since mid-June.
In the broad market, declining issues beat advances 1,923 to 1,033 in very heavy trading of 739.88 million shares on the New York Stock Exchange.
The Nasdaq composite index lost 9.39 points, or almost 0.5%, to 1,969.75, after tumbling 1.7% on Tuesday.
Greenspan, who spooked markets Tuesday when he suggested in testimony on Capitol Hill that the Fed is still concerned about inflationary pressures in the economy, said little new on Wednesday as he concluded his two-day appearance.
But asked specifically about the stock market by one congressman, Greenspan said, “Ultimately, history tells us that there will be a correction of some significant dimension.”
The comment, though hardly a revelation, was enough to scare some investors out of the the market after Wall Street’s recent run to record highs.
“I tend to think we will see more follow-through on the downside because sentiment is overly bullish and the market had gotten very thin on the advance,” said Courtney Smith, chief investment officer at Orbitex Management.
While the Fed chief told a congressional banking committee that market corrections are inevitable, analysts said investors were simply using that as an excuse to take profits.
“It was a carry-over from yesterday, and it seems to be more influenced by earnings shortfalls than by further comments from Greenspan,” said Robert Stovall, president of Twenty-First Securities.
Last week, the Dow racked up three record highs, while the Nasdaq index on Tuesday ended a string of nine straight record-high closes.
Greenspan said he did not know when such a correction is likely, but added that investors who bought on the dips in the past have “turned out to be the ones who are prescient and wealthier.”
On Tuesday, Greenspan rattled the stock market with a warning that interest rates may have to rise if job growth and demand fail to slow, surprising investors who were hoping the central banker would talk about lowering interest rates.
But Wall Street was betting that the Fed chief would make more optimistic comments Wednesday.
Analysts said the market longed to hear hints of a cut in rates, but instead Greenspan kept a neutral stance in his semiannual Humphrey-Hawkins testimony.
In the bond market, the yield on the key 30-year Treasury bond rose to 5.69% from 5.66% on Tuesday.
The dollar rose to 141.24 yen late in New York from 140.35 late Tuesday. It edged up to 1.7885 German marks from 1.7870.
The other problem Wednesday was the number of disappointing quarterly earnings reports--reminding investors that a profit slowdown is occurring in the economy overall.
Computer Associates plunged, tumbling $17.50 to $39.50, erasing $10 billion in market value. While the software maker reported a 25% increase in profit before a charge, it said many companies are deferring purchases to fix their year 2000 problems. It also warned that Asia’s economic slump will slow revenue and earnings growth in coming quarters.
Hewlett-Packard also slid after warning about earnings, losing $2.50 to $55.38.
“Today everyone is worried about technology,” said Tim Ghriskey, who oversees $4 billion as a money manager with Dreyfus Corp. “Asia is going to continue to have an impact on any company that does business there, this year and next year. Asia is not a quick turnaround.”
Among Wednesday’s market highlights:
* PeopleSoft fell for a third day, down $3.88 to $42.38, amid concern that revenue growth may slow. On Tuesday the software company reported quarterly earnings of 15 cents a share, a penny more than expected.
* Kulicke & Soffa fell $1 to $14.69 after the chip-making equipment company said it lost 13 cents a share, 4 cents more than expected.
* Oakwood Homes tumbled $10.06 to $20.94 after the maker of manufactured homes surprised investors late Tuesday by taking charges to write down the value of mortgage securities.
* On the plus side, United Technologies, one of the 30 Dow industrials, rose $2.06 to $96.31 after it reported earnings of $1.44 a diluted share, 6 cents better than forecast. Higher sales at its Pratt & Whitney jet engine and Carrier air-conditioning units offset declines in other businesses. The stock has risen 13% in six weeks.
Market Roundup, D8
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
The Profit Slowdown
Fed Chairman Alan Greenspan this week cited slowing corporate earnings growth as a major problem for stocks’ bull market. Year-to-year percentage growth in operating earnings for the blue-chip Standard & Poor’s 500 companies, each quarter:
2nd quarter: 4.0%*
*Estimate
Source: Morgan Stanley Dean Witter
