Stocks Struggle as Investors Weigh Earnings News, Forecasts
Investors refrained from making any big commitments on Wall Street on Wednesday, leaving stocks little changed as the market tried to discern a trend in earnings and the economy.
Blue chips fluctuated amid a series of bleak profit reports and forecasts from the likes of DuPont and McDonald’s.
Tech stocks rallied early in the day after upbeat earnings from Compaq Computer and software maker Siebel Systems but lost ground as some investors locked in profits ahead of today’s testimony by Federal Reserve Chairman Alan Greenspan before the Senate Budget Committee and next week’s Fed meeting.
The Dow Jones industrial average ended the day off 2.84 points, or 0.03%, at 10,646.97. The Nasdaq composite index rose 18.76 points, or 0.7%, to 2,859.15, and the broader Standard & Poor’s 500 index ended up 3.90 points, or 0.3%, at 1,364.30.
Investors’ lack of commitment was reflected in the market breadth, the ratio of advancing to declining stocks. Winners and losers were virtually even on the New York Stock Exchange, while advancers led declining issues by a slim 20-17 margin on Nasdaq. Volume was strong on both markets, with 2.5 billion shares changing hands on Nasdaq.
Analysts said it is hard to predict how upcoming earnings announcements will affect trading each day. Wall Street’s overall mood seems optimistic, but there is some uncertainty about whether bad earnings news has been factored completely into the cheaper prices of many stocks.
“The general tone is positive, even though the market is weighing things,” said Dan Ascani, president of Global Market Strategists. “Generally speaking, the market is digesting [earnings] well.”
But as usual, investors are looking ahead, not backward. That was the case Wednesday with DuPont, which surpassed profit forecasts by a penny but said challenging business conditions will pinch earnings into the first half of this year. The chemical company fell 19 cents to close at $41.88.
McDonald’s, after warning that the first quarter will be difficult, tumbled $2.06 to $30.81. The fast-food giant also missed fourth-quarter earnings forecasts by a penny.
Although investors still are trading with some caution, they seem to be growing more confident that profits and the economy will improve, partly because of lower interest rates. The market is hopeful that the Fed will reduce rates for the second time in a month when it meets next week.
There is evidence of the market’s increasing optimism in its recent preference for tech stocks over so-called defensive issues, such as drug stocks, that tend to perform better in bearish markets.
Drug maker Bristol-Myers Squibb fell $1.38 to $64.88, despite beating earnings forecasts by a penny. Analysts say the drug sector has become overpriced as investors sought safer bets during last year’s high-tech tumble.
Trading in the tech sector, meanwhile, was mixed. Compaq, the No. 1 personal computer maker, rose $1.80 to $21.85 after it pleased investors with operating income that beat analysts’ forecasts in results released after Tuesday’s regular trading ended. Siebel bounced early on news of strong fourth-quarter profit but traded off late in the day, finishing up 89 cents at $79.38.
And bargain-hunting continued among Internet shares, with Inktomi rising $1.38 to $18.63, Commerce One gaining $2.81 to $34.75, Interwoven up $2.88 to $34.13 and Art Technology Group ahead $4.06 to $26.88.
But Texas Instruments, which on Tuesday issued a disappointing earning report and first-quarter outlook, fell $1.50 to $43.50. And high-speed communications chip company Broadcom rose throughout the morning, then fell $8.50 to $124.94 after brokerage Credit Suisse First Boston cut its price target on the stock to $175 from $300. Irvine-based Broadcom is still up 49% so far this year.
Many tech investors are betting the second half of the year will bring a better economic environment and, on the back of that, improved profit growth in the high-tech sector, analysts say.
Market Roundup, C8-9
