Stocks Reel From More Profit Woes
Wall Street’s pessimism about corporate earnings deepened Friday, triggering a sharp sell-off in stocks worldwide.
The technology sector led the decline in the wake of warnings late Thursday from several bellwether companies.
The Nasdaq composite index slumped 75.95 points, or 3.7%, to 2,004.16--its fourth consecutive daily drop.
The Dow Jones industrials slid 227.18 points, or 2.2%, to 10,252.68, lowest since April 17. The Standard & Poor’s 500 tumbled 2.4%, its biggest loss in three months.
The latest earnings warnings, combined with news of an increase in the June unemployment rate, exacerbated fears that second-quarter profit reports might be worse than expected--and that a business turnaround won’t happen before 2002.
“A lot of people had bought the idea that the worst was behind us. Obviously, that’s not the case,” said Richard Dickson, a technical analyst at Hilliard Lyons. “The earnings warnings, particularly in tech, are continuing, and that’s spreading to the rest of the market.”
“The question is still, ‘When is the economy going to turn?’ ” said Todd Clark, co-head of trading at WR Hambrecht. “With the EMC and Advanced Micro Devices misses being so big and really blindsiding the Street, it’s caused people to say, ‘I’m pulling bids, and I’m not going to be buying right now.’ ”
EMC tumbled $8.43 to $21.60, down 28%, after the data storage company said late Thursday that a slowdown in tech spending will put its second-quarter earnings far below Wall Street expectations.
A similar earnings prediction from Advanced Micro Devices late Thursday sent the chip maker down 27%, falling $7.84 to $20.80.
Trading volume was light throughout the week because of the Fourth of July holiday Wednesday. Still, analysts said the drop reflects a general uneasiness about where the market is headed.
Losers swamped winners by 2 to 1 on Friday on the New York Stock Exchange and by 25 to 11 on Nasdaq.
Friday’s losses made for a disappointing week for all three major market indexes.
The Dow ended the week down 2.4%, its seventh straight weekly decline. The S&P; lost 2.8% for the week, and the Nasdaq dived 7.2%. Nasdaq jumped 6.2% the previous week.
Markets also were broadly lower overseas. The German market sank 2.3%, Tokyo stocks slumped 2.4%, and the Mexican market lost 1.5%.
The degree of the latest U.S. earnings warnings made investors think twice about other technology issues, including IBM, which fell $5.60 to $106.50, and Intel, which dropped $1.41 to $28.43.
Also, Brocade Communications Systems plunged $8.88 to $31.89 and Emulex sank $6.76 to $29.06 after brokerage Credit Suisse First Boston downgraded both to “hold” from “buy.”
But investors also dumped many non-tech issues as well.
The reduced forecasts are the latest in a string of warnings that began weeks ago in advance of second-quarter reports due out starting next week.
Although Wall Street was expecting weak results, the extent of the warnings, combined with most companies’ inability to predict when those figures will improve, has fouled investors’ moods.
The fact that warnings have come from an array of sectors, rather than just technology as expected, also has upset the market.
As a result, instead of buying stocks on expectations of a turnaround, investors have been cautiously buying during the market’s dips and selling as soon as stocks showed any strength, analysts say.
The losses also have eroded the market’s huge rally this spring, although the major indexes remain above their two-year lows reached in early spring.
A new Labor Department report gave investors little reason to change their strategy.
The figures showed the nation’s unemployment rate rose 0.1 percentage point to 4.5% in June from May as manufacturers continued to suffer heavy job losses and demand for workers in service industries fell to the lowest level in 10 months.
While stocks were hurt by economic worries, bonds benefited. Yields fell across the board in the Treasury market on hopes the Federal Reserve might cut interest rates further in the second half. The yield on the 10-year T-note fell to 5.36% from 5.40% on Thursday.
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Market Roundup, C4-5
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Tech Fears Deepen Again
The Pacific Stock Exchange index of 100 major tech stock fell Friday to its lowest point since early April amid the latest barrage of earnings warnings.
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PSE tech index, weekly closes
Friday: 672.18
Source: Bloomberg News
