Profit Warnings Rattle Stocks; Nasdaq Off 2.9%
Investors spooked by a series of corporate profit warnings hammered technology stocks Friday, helping to push the three major stock indexes to their first weekly losses in six weeks.
The Nasdaq composite index closed down 119.94 points at 3,978.41, a loss of nearly 3%. Nasdaq, home of many leading tech stocks, fell 6% during the holiday-shortened week. It was also Nasdaq’s first close below 4,000 since Aug. 22.
The Dow industrials slid 39.22 points to 11,220.65, a loss of less than 1% for the day and the week. The Standard & Poor’s 500 index fell 8.01 points to 1,494.50, off about 0.5% for the day and 1.7% for the week.
The tumultuous week saw investors first abandon tech stocks for blue chips and then completely change their strategies.
“What we’re doing now is pricing in some measure of an economic slowdown. We’re looking at a fair number of warnings about slowdowns in the third quarter,” said Chris Dickerson, an analyst with Global Market Strategists in Gainesville, Ga.
For instance, auto-parts maker TRW and online brokerage National Discount Brokers said quarterly profits will fall short of estimates. SpeedFam-IPEC, a computer-chip equipment maker, said it had an unexpected loss.
Early in the week, investors had bid blue chips higher. But they shifted their attention to Nasdaq Thursday, sending it up 85.01 points, while the Dow fell 50.77 points after chemical giant DuPont warned that earnings would be down because of soft demand and increased costs.
“Any time anything looks to be moving, money managers jump into that sector because they have to squeeze out what percentage of profit they can. They’ll jump in for a couple of days and then jump out,” Dickerson said. “There’s a rush almost to avoid not losing out.”
The Russell 2,000 index of smaller companies fell 1.3% Friday.
Declining issues outnumbered advancers by a 5-4 ratio on the New York Stock Exchange, where trading was active.
The bond market was quiet. The yield on 10-year Treasury note closed at 5.73%, down from 5.75% Thursday.
Overseas, Japan’s Nikkei stock average rose 1.2%, while Germany’s DAX fell 1.4% and Britain’s FT-SE 100 was down 1.3%.
Among Friday’s highlights:
* Shares of TRW fell $1.44 to $43.81 after the company said third-quarter earnings will be 19 cents to 24 cents a share below expectations because of production cuts at Ford Motor--to which TRW supplies air bags--weak foreign currencies and slower electronics sales. The stock actually bounced back in late trading after plummeting in after-hours trading Thursday night.
* Semiconductor shares continued to short-circuit, turning in the second-worst performance of any group in the S&P; 500 for the week. Most of the damage came after analysts earlier in the week warned that chip prices may fall and downgraded Intel, which lost $2.06 to $65.38 Friday, and Micron Technology, which slipped $4.50 to $69.
Related sectors also fared poorly. KLA-Tencor, the No. 1 maker of chip inspection tools, lost $5.38 to $55.75, and Teradyne, the largest maker of chip testing equipment, fell $4.88 to $57.
* Shares of National Discount Brokers plummeted $8 to $27.81--a loss of more than 22%--after the firm said it expects to lose 6 cents to 9 cents a share for its fiscal first quarter. Wall Street had expected a profit of 9 cents a share. The company blamed higher costs and a dropoff in day trading as a result of last spring’s Nasdaq plunge.
* High-tech communications firm MPower Communications fell $3.44 to $8.88 after Merrill Lynch analyst cut its rating to “accumulate” from “buy.” The downgrade came a day after MPower revised its third- and fourth-quarter outlook downward.
* Shares of Web consultant Scient bounced back after that sector was pounded a week ago on profit concerns. Scient’s stock rose $6.25 to $27, or 30%, after an analyst said the company’s earnings may beat estimates this quarter.
Market Roundup: C4-5
