Stocks tumbled Tuesday, driving the Nasdaq composite index to its lowest close since mid-April, as more investors moved to the sidelines ahead of second-quarter corporate earnings reports.
A downbeat forecast late Monday from fiber-optic giant Corning helped trigger renewed selling in technology issues, sending the Nasdaq index down 63.92 points, or 3.2%, to 1,962.79. That was its lowest since April 17.
The blue-chip Dow Jones industrial average and Standard & Poor's 500 index had preceded Nasdaq to mid-April lows Friday, and they slumped further on Tuesday. The Dow dropped 123.76 points, or 1.2%, to 10,175.64, while the S&P; fell 1.4%.
Though trading volume wasn't heavy, losers outnumbered winners by about 3 to 2 on the New York Stock Exchange and on Nasdaq.
Analysts said continued fears of weaker earnings and concerns about the slowing global economy weighed on the market.
Companies are set to begin reporting second-quarter results this week, and expectations already are low given the economy's struggle in recent months.
But a series of profit warnings late last week from key tech firms and other companies suggested that analysts still may not have reduced their earnings estimates enough to match dismal results.
Late Tuesday, Compaq Computer said it will meet second-quarter earnings estimates but that sales will be far below estimates. The company slated 4,000 new job cuts.
Among tech issues sliding Tuesday were Corning, down 98 cents to $14.12; Cisco Systems, down $1.05 to $16.20; Apple Computer, down $1.56 to $21.14; Broadcom, down $3.70 to $35.36; and Siebel Systems, down $3.41 to $40.
Some investors, such as John Forelli, portfolio manager at Independence Investment Associates in Boston, said that while their long-term outlook remains bullish, they are bracing for a trying summer.
Not only are profit reports for the second quarter likely to be rife with disappointment, but Forelli believes that profit estimates for the second half are still about 10% too high for companies in the S&P; 500. So Corning's announcement probably will be followed by other bombshells, he said, which could rock the market this quarter.
"But by the fourth quarter, I think we'll see tangible evidence of economic recovery," Forelli said. "For now, we're in for a few tough months."
Profit woes aren't just afflicting tech companies. Insurer Chubb fell $1.84 to $72.46 on Tuesday after saying it had $80 million of storm-related losses in the second quarter that will slash earnings per share by as much as 31%.
After trading ended, another insurer, Allstate, also said second-quarter results will be hammered by catastrophe losses.
One significant risk to the market is that key indexes could fall below their two-year lows reached in late March or early April. That could further shake the confidence of investors who thought the yearlong bear market ended in spring, analysts said.
With Tuesday's decline, the S&P; 500 is 7% above its two-year closing low of 1,103.25 set April 4. At its spring rally peak, the index was 19% above the April low.
The Dow is 8% above its spring low, while the Nasdaq index is 20% above its spring low.
Philip Orlando, chief investment officer at Value Line Asset Management in New York, believes that the major indexes will hold above their spring lows. He expects the market to benefit from another interest rate cut at the Federal Reserve's Aug. 21 meeting--or perhaps from an intra-meeting cut late this month if economic data this week and next look uglier than expected.
He also expects the federal income tax cut to boost the economy.
In other markets Tuesday, Treasury bond yields tumbled, benefiting from cash exiting stocks and from worries about Argentina's market turmoil.
The yield on the two-year T-note slid to 4.02% from 4.12% on Monday. The 10-year T-note fell to 5.27% from 5.33%.
Market Roundup, C8-C9