Stocks Dive as Fears Over Earnings, Economy Rise : Wall St.: Some analysts say broad market’s woes now are spreading to blue chips. Dow’s 225-point loss is worst since May.
The stock market fell sharply Tuesday, driving the Dow Jones industrial average to its lowest level since late June, as jitters over corporate earnings, the weak dollar and the soaring U.S. trade deficit triggered widespread selling.
The Dow tumbled 225.43 points, or 2.1%, to 10,598.47, in the biggest one-day decline for the blue-chip index since May 27.
In the broad market, losers swamped winners by more than 3 to 1 on the New York Stock Exchange and by more than 2 to 1 on Nasdaq, in active trading.
The Nasdaq composite, which hit a record high Sept. 10, slid 2.3%.
Some analysts said Tuesday’s sell-off simply marked the spread of investors’ growing wariness about stocks to the blue-chip sector. Indeed, declines in sectors such as financial stocks, transportation stocks and utility stocks have been going on for weeks or months.
“The market has been consistently deteriorating over the last few months to the point where the only leadership has been high-tech,” said Edward P. Nicoski, strategist for U.S. Bancorp Piper Jaffray in Minneapolis.
On Tuesday, many of those tech leaders slid after Apple Computer’s surprise warning late Monday that earnings for the quarter ending Sept. 30 will be below expectations.
Apple shares, which hit a record high on Monday before the announcement, plummeted $9.81 to $69.25, a 12.4% drop.
Apple said its problem isn’t lack of demand but a shortage of parts. Still, its earnings shortfall announcement added to the string of major companies recently warning that they won’t meet Wall Street expectations this quarter.
Amid rising interest rates this year, investors have been counting on strong earnings to justify stocks’ prices. Although earnings overall still are expected to be robust this quarter, the number of negative earnings warnings so far has surprised some analysts.
Other stocks down sharply Tuesday on earnings concerns included Goodyear, off $4.63 to $47.31, and Seagram, down $4.69 to $46.81.
The market also was hurt Tuesday by the dollar’s latest slump against the yen, after the Bank of Japan declined to loosen monetary policy and pump up the supply of yen.
The July trade deficit report--which depicted a very strong U.S. economy--also weighed on stocks, analysts said, because it may push the Federal Reserve closer to raising short-term interest rates again. Fed policymakers next meet on Oct. 5.
“The fear of another interest rate hike is clearly weighing heavily on the market for now,” said Ned Riley, chief investment officer at BankBoston.
Still, bond yields didn’t rise much on Tuesday: The bellwether 30-year Treasury bond yield edged up to 6.09% from 6.07% on Monday. The two-year T-note yield was unchanged.
Some analysts said stocks could weaken further if more institutional investors opt to take profits before the quarter ends.
With the Dow still up 15.4% year-to-date, and the Nasdaq composite up 28.9%, “managers are locking in some gains,” said David Rolfe, chief investment officer at St. Louis-based Wedgewood Partners, which manages $170 million.
But many or most stocks are down for the year, not up. The Standard & Poor’s small-stock index now is off 0.8% year-to-date.
The market’s strength remains concentrated in a handful of big-name issues, especially tech names.
The narrowness of the market leadership makes Wall Street even more vulnerable to decline than it was a year ago, Nicoski argues.
Other analysts say investor sentiment has already grown so bearish that stocks could be poised to rebound in coming weeks.
The percentage of bullish investment newsletter writers in the weekly survey by Investors Intelligence newsletter has fallen to 41.5%, the lowest since last October. Often, such low levels of bullishness precede market turnarounds, as bearishness exhausts itself, analysts note.
Among Tuesday’s highlights:
* In the tech sector, Microsoft slid $2.94 to $94.63, IBM fell $3 to $127.13, Cisco Systems lost $2.06 to $71.13, Hewlett-Packard gave up $4.69 to $99.38 and Intel sank $2.06 to $82.
But many Internet names rose. America Online rebounded $2.06 to $84.88 and EBay jumped $4.63 to $140.63.
* Goodyear slumped after J.P. Morgan analysts slashed quarterly earnings estimates. The company, however, declined to comment.
Meanwhile, B.F. Goodrich, which now is a chemical and aerospace company (it exited the tire business years ago), slid $1.13 to $29.88 after saying it will make less money this year than expected because of higher raw material prices in its chemical business.
* Bank and brokerage stocks resumed their slide. Citigroup fell $1.31 to $42.75 and Chase Manhattan tumbled $2.50 to $75.94, while Merrill Lynch dropped $2.06 to $69.06 and Charles Schwab lost $1.38 to $36.
* Health-care stocks were broadly lower. Amgen sank $2.94 to $82.69, and Johnson & Johnson was off $2.50 at $94.
Also, WellPoint Health fell $2.44 to $65.75, though it recovered from a low of $62.94 after the company said it is comfortable with Wall Street’s earnings estimates.
* Gold stocks got a boost as bullion prices rallied. Newmont Mining rose $1.94 to $21.81, and Barrick Gold jumped $1.13 to $19.81.
Market Roundup, C13
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* RECORD TRADE DEFICIT
The U.S. trade deficit swelled to $25.2 billion in July. C3
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Losses Deepen
With Tuesday’s slide, losses worsened in some market sectors already down for the year. Data for Standard & Poor’s indexes:
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Percentage change: S&P; index Tuesday 1999 500 -2.1% +6.4% Mid-cap -1.9% Nil Small-cap -1.4 -0.8 Financials -2.2 -4.8 Utilities -2.0 -5.0 Transports -1.6 -9.4
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Source: Bloomberg News
