Continuing Profit Warnings Drag Broad Market Down
The broad market failed to rally Thursday despite a drop in oil prices, and Intel Corp.’s announcement after regular trading ended may explain why.
The tech giant’s warning of a sales shortfall this quarter sets a dangerous backdrop for today’s trading, with the Nasdaq composite index already down nearly 10% this month.
“There are concerns about what types of earnings growth is possible for large stocks that have high price-to-earnings ratios,” said Bill Meehan, chief market strategist at Cantor Fitzgerald & Co. “I’m advising investors to lighten up on tech” stocks.
Nasdaq fell 68.57 points, or 1.8%, to 3,828.87 Thursday--before Intel’s news--as losers outnumbered winners 24 to 15 despite the pullback in crude oil prices and a modest rally in the euro currency.
The Dow industrials rose 77.60 points, or 0.7%, to 10,765.52, but losers topped winners by nearly 3 to 2 on the Big Board.
The market was under pressure from another batch of earnings warnings that preceded Intel’s warning. With the economy slowing and energy prices way up, more companies are saying third-quarter results won’t meet expectations.
Among the companies issuing warnings were Goodyear, which fell $2.88 to $18.13; Snap-On Tools, down $4.38 to $22.81; and Newell Rubbermaid, down $1.13 to $21.94.
On the plus side, conglomerate 3M jumped $4.69 to $86.44 after the company assured analysts it will meet third-quarter goals. 3M’s gain helped boost the Dow index.
The drop in oil prices, with November crude futures down $1.24 to $34 a barrel, at least appeared to help the bond market: Yields fell across the board, with the 10-year Treasury note ending at 5.85%, down from 5.90% Wednesday.
U.S. stocks, however, faced an uphill battle after another day of sharp declines in many foreign markets. The German stock market lost 1.2%, the Hong Kong market fell 3.2% and the Mexican market dropped 2.9%.
The euro, however, rose from near-record lows on speculation that major central banks may buy euros to support the currency after the Group of 7 industrialized nations meeting this weekend.
The euro ended at 85.8 U.S. cents in New York, up from 84.6 cents Wednesday.
Among Thursday’s highlights:
* The telecom sector continued to slide after Sprint PCS said Wednesday that earnings will fall short of expectations. Sprint PCS lost $4.75 to $28.50, Lucent Technologies plunged $3.38 to $32, Nortel Networks dropped $7.50 to $61 and Corning lost $23.50 to $292.
But SBC Communications gained $2.25 to $46.69 on a bullish report on its entry to the long-distance market in Texas.
* Morgan Stanley Dean Witter slid $6.63 at $89.31 after the brokerage’s third-quarter earnings failed to meet Wall Street expectations. Other brokerage shares falling included Merrill Lynch, down $3.50 to $62.69; Lehman, down $4.50 to $141.50; and Charles Schwab, down $3.11 to $30.
* Food and drug stocks--classic “refuge” stocks in a troubled market--gained as investors exited many other sectors. Earthgrains rose $2 to $17, Quaker Oats gained $1.19 to $74.13, Pepsico rose $1.75 to $43.38, Eli Lilly surged $3.94 to $78.06 and Johnson & Johnson leaped $3.17 to $94.25.
Market Roundup: C6-7
