Poor Earnings Reports Drag Markets to Moderate Losses
Major stock indexes gave up early gains and closed moderately lower Tuesday as poor earnings reports weighed on investors, prompting them to again cash in recent profits.
Throughout the day, investors were torn between their newfound optimism about earnings and the economy and fears that it will be much longer before the business environment improves.
The Dow Jones industrial average lost 77.89 points, or 0.7%, to close at 10,454.34. Investors became more cautious as the session progressed, pulling back after sending the Dow up as much as 106.83 points earlier.
Wall Street’s broader indicators also finished lower. The Nasdaq composite index fell 42.71 points, or 2.1%, to 2,016.61, but it is still up 23% from its low for the year of 1,638.80, reached April 4.
The Standard & Poor’s 500 index fell 14.89 points, or 1.2%, to 1,209.47. The loss put the S&P; 500 back into bear market territory, defined as a loss of 20% or more from a recent peak.
Despite the declines in the indexes, the overall picture was less bleak. Advancing stocks actually led declining issues by a razor thin margin on the New York Stock Exchange, while decliners led advancers by a 10-9 margin on the Nasdaq Stock Market. Trading was active on both markets.
Analysts expected the market to pull back after last week’s big rally, which saw the Dow gain 452 points and Nasdaq pick up 201.
“We did make a pretty giant leap. I think we are just consolidating,” said Steven Goldman, market strategist for Weeden & Co.
He and other analysts also said the profit taking had little to do with a report by the Conference Board that consumer confidence dropped significantly in April. Investors believe the decline should give the Federal Reserve greater incentive to lower interest rates for the fifth time this year when its policymaking Open Market Committee meets in mid-May.
Wall Street, which last week ended its two best weeks of the year on positive earnings news and an unexpected rate cut by the Fed, is having conflicted emotions about the economy--while hoping that business and earnings will turn around soon, investors also are fearful that a recovery could take much longer.
“Fed rate cuts are pluses for the economy, but they take time to work their way through the system,” said Alan Ackerman, executive vice president of Fahnestock & Co.
Investors sold companies that posted disappointing profits. Consumer products maker Kimberly-Clark plunged $6.17 to close at $56.61 on news it missed earnings expectations by a penny a share.
JDS Uniphase tumbled $3.36 to $20.82 after announcing it would restructure its business, laying off 20% of its work force and closing several operations. Although earnings for its fiscal third quarter met forecasts, the company said it anticipates fourth-quarter profit to be 5 cents a share, 7 cents shy of expectations.
Another victim of poor earnings: Compaq Computer. The computer maker’s first-quarter results were a penny below already lowered expectations. The stock slid 15%, losing $3.15 to $17.50. Dell Computer also fell, losing $3.50 to $25.85. The Philadelphia Computer Box Maker index ended the day off 3.8%.
When investors bought stocks Tuesday, they did so with caution, gravitating toward some of the market’s safest sectors, such as energy issues. Enron rose 22 cents to $61.87.
Investors also rewarded companies that posted better-than-expected profits. DuPont, a Dow stock, rose 67 cents to $44.80 on earnings that beat expectations by 3 cents a share.
In overseas markets, Argentine stocks rose after a three-day drop as the nation’s $1-billion bond sale renewed optimism the government would be able to raise financing to make debt payments.
Argentina’s Merval index rose 2.1% to 420.32.
Argentina, mired in recession, on Monday sold $1 billion in three-year promissory notes to banks and other companies to help pay $6.2 billion in debt coming due in the next four months. That helped build confidence that the cash-strapped country would be able to roll over maturing debt.
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Market Roundup, C7, C8
