Microsoft Warning Prompts Tech Sell-Off; Indexes Tumble
Stocks ended the week on a sour note Friday after Microsoft joined a slew of high-profile companies in confessing its profit would disappoint investors.
The news sent investors scuttling out of the tech sector once again, and helped drive the broad Standard & Poor’s 500 index to its lowest close in more than a year.
The Nasdaq composite index tumbled 75.24 points, or 2.8%, to close at 2,653.27. Volume was extremely heavy at 2.6 billion shares, and losers led winners nearly 2 to 1. More than 300 issues hit new 52-week lows, versus only 30 new highs.
The tech-laden Nasdaq index, which lost 9% for the week, is down almost 35% for the year.
The Dow industrials dived 240.03 points, or 2.3%, to 10,434.96 on Friday. The S&P; 500 index sank 2.2% to 1,312.15, its lowest close since October 1999.
On the New York Stock Exchange, where volume also was very heavy, 16 stocks fell for every 13 that rose.
Microsoft, a Dow component and Nasdaq heavyweight, said it is feeling the global slowdown in computer sales, and that current quarter sales and earnings will be about 5% below expectations.
The stock closed down $6.31, or 11.4%, at $49.19, after tumbling to a two-year low of $47.75.
The recent barrage of profit warnings have overshadowed optimism that the Federal Reserve could soon rescue corporate America from the specter of a slower economy by trimming interest rates, analysts said. The Fed meets Tuesday.
“On optimistic days, people focus on the likelihood of a rate cut, and on bad days, people are going to focus on earnings disappointments,” said John Forelli, a portfolio manager at Independence Investment Associates. “Today, people are worried about Microsoft.”
Microsoft joined a lengthy list of such marquee names as Intel, Eastman Kodak, GM and Chase Manhattan, all of which have painted dimming profit pictures as the U.S. economy slows.
The bad news, however, isn’t universal: Oracle, the world’s No. 2 software maker, gained $1.06 to $28.56 after its quarterly profit beat expectations. Adobe Systems rose $5.13 to $62.44 on its profit report.
But many other tech shares fell with Microsoft. Networking giant Cisco Systems lost $2.77 to $48.17. Just before the market closed, Bloomberg News reported that Cisco in its recent quarter set aside $275 million in loss reserves for unpaid customer bills and other items--triple the reserves of a year earlier.
The report renewed fears about the exposure that Cisco and other equipment makers face from telecom and Internet company customers that now are short of cash.
Internet equipment suppliers Sun Microsystems, down $1.25 to $30.44, and EMC, off $6.50 at $68.13, fell after Bear Stearns cut its investment ratings on them, pointing to weak corporate tech spending. Among other tech shares, Compaq fell $1.35 to $17.35, Qualcomm sank $8.50 to $79.56 and IBM fell $4.63 to $87.81.
President-elect George W. Bush underscored investors’ concerns about lackluster U.S. growth, saying he was worried about a slowdown. He said the economy’s weakness showed the need for tax cuts.
After a rally from 10:45 a.m. to 12:30 p.m., stocks slid in the final 30 minutes of trading, with the Dow closing near its low for the session. But some analysts were encouraged that Nasdaq held above its 52-week intraday low of 2,523 reached Nov. 30. Brian Belski, strategist at U.S. Bancorp Piper Jaffray, said that could serve as a floor under the market.
Stocks were more volatile than normal Friday because of so-called triple witching, the simultaneous expiration of stock index futures, index options and equity options, said Ricky Harrington, a technical analyst at Wachovia Securities. He believes stocks are “oversold”--meaning that they’ve fallen so far in such a short period of time that they’re due for some sort of noteworthy bounce. Such a rally would have come already, Harrington said, but for the fact that “the market has been bombarded almost daily” by earnings warnings from leading companies.
“There’s a very good chance of some relief to the upside,” Harrington said. But, he added, “we’re in a bear market and the year 2001 is going to be a very difficult year for the market.”
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Times staff writers Walter Hamilton and Thomas S. Mulligan contributed to this report.
Market Roundup, C4-5
