Cloudy Profit Outlook Cuts a Rally Short on Wall Street
Earnings worries reappeared Monday on Wall Street, cutting short a rally triggered by hopes that the U.S. presidential election will soon be resolved.
Financial and pharmaceutical stocks led blue chips higher, but the gains softened considerably late in the day. Many technology issues gave up an early advance and closed down after analysts lowered their expectations for three communications chip makers.
“The thing that drives stocks is earnings, and earnings are slowing down just like the economy. It’s as simple as that,” said Larry Wachtel, a market analyst with Prudential Securities. “We’ve been in a 10-year economic expansion . . . and this is a very difficult transition for the market.”
The Dow Jones industrial average closed higher for a second straight session, rising 75.84 points, or 0.7%, to 10,546.07. But the blue-chip index was up more than 156 points earlier in the day.
Broader stock indicators were mixed. The Nasdaq composite index fell 23.89 points, or 0.8%, to 2,880.49, after spiking up as much as 94 points in morning trading. The Standard & Poor’s 500 index rose 7.20 points, or 0.5%, to 1,348.97.
The early advance was a reaction to Florida’s official recognition of Texas Gov. George W. Bush as the winner of its key electoral votes. Monday afternoon, though, Vice President Al Gore challenged the results in court and an imminent end to the election dispute appeared unlikely.
Although the election indecision may be making investors hesitant about making big commitments, analysts attributed most of the market’s unevenness to profit concerns.
Worries that third-quarter earnings would be disappointing sent stocks tumbling in September and October. The issue is reemerging as investors realize that the effects of the nation’s slowing economic growth are likely to show up in fourth-quarter results.
“The lack of closure on the election is certainly an excuse for seeing pressure in the marketplace, but, fundamentally, you’ve had a lot of very high-priced stocks that are confronting a substantial slowdown in the economy and earnings,” said Robert J. Barbera, chief economist at Hoenig & Co.
Those worries dogged technology stocks but translated into gains for many drug and financial stocks, two sectors often considered safer bets in times of market volatility. Merck rose $2.19 to $91.63 as part of a broad advance in drug issues. Financial issues were led higher by banker J.P. Morgan, up $1.94 at $144.13, and Wells Fargo, up 94 cents to $44.31.
Advancing issues outnumbered decliners 13 to 10 amid moderate trading on the New York Stock Exchange. But losers led winners 23 to 18 on Nasdaq, where 1.7 billion shares changed hands.
Among Monday’s highlights:
* The semiconductor sector slumped after Lehman Bros. lowered its earnings forecasts for communications chip makers Xilinx, which tumbled $10.31 to $46.50, and Altera, which slipped $3.88 to $27.31.
Irvine-based Broadcom, another chip maker, also fell, plunging $19.56 to $97.56, after Salomon Smith Barney reduced its 12-month price target for the stock to $200 from $300.
* The prospect of healthy earnings gave retailers a boost, as investors responded to reports of strong holiday sales. Wal-Mart rose $4.13 to $49.31 and Radio-Shack surged $4.31 to $53.56.
* Adobe Systems fell more than 9% after Banc of America analyst Greg Vogel cut his rating on the software stock to “market performer” from “buy.” He said the shares, which have doubled this year, are unlikely to rise further because Adobe’s sales growth and margin improvement have leveled off. The stock closed at $68.81, down $7.06.
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Market Roundup: C10, C11
