Dreary Outlook Batters Stocks
Stocks tumbled to 14-week lows Tuesday as dour forecasts from industry leader AT&T; and new mass layoffs at Lucent Technologies suggested the slump in corporate profits is far from over.
Amazon.com also rattled Wall Street when the online retail giant said sales could slow further amid feeble economic growth. The news ignited fears that consumer spending is dropping and could undercut an economic rebound, money managers said.
“It’s a horrible market,” said Rich Levy, head of block trading at CIBC World Markets Inc. “No one’s buying into this thing. People are tired of losing money.”
The Dow Jones industrial average tumbled for the third session in a row, dropping 183.30 points, or 1.8%, to 10,241.12. The broader Standard & Poor’s 500 index fell 19.38 points, or 1.6%, to 1,171.65.
The technology-laden Nasdaq composite index also dropped for a third straight session, losing 29.32 points, or 1.5%, to 1,959.24, widening Monday’s loss of 2%. Tuesday’s swoon marked the lowest close for Nasdaq and the S&P; 500 since mid-April.
Stocks fell broadly across sectors. Only eight industry groups out of 107 tracked by S&P; finished the day in positive territory, led by gold--a traditional investment haven in troubled times.
More than two stocks fell for every one that rose on Nasdaq and the New York Stock Exchange. Trading was active.
Amid the busiest week of the earnings reporting season, companies are unable to predict when profits will turn up again.
Troubled telecom giant Lucent posted a loss and said it will cut its work force by an additional 15,000 to 20,000 jobs. Lucent, the most heavily traded stock on the NYSE, fell $1.47 to $6.43--a drop of more than 18%.
“When Lucent announces a layoff on top of previous layoffs, it shows there are more recession-type strategies being used for survival purposes,” said Ned Riley, chief investment strategist for State Street Global Advisors.
Long-distance telephone and cable television giant AT&T; said stiff competition and weak prices in the long-distance phone market hurt profit, and warned third-quarter revenue may fall. Its shares fell 59 cents to $19.46.
Amazon.com helped lead Nasdaq lower after the online retail giant said sales could slow further. The company posted a narrower-than-expected loss, but its revenue disappointed. Amazon fell more than 24%, or $3.97, to $12.06.
Matters weren’t helped any by Federal Reserve Chairman Alan Greenspan, who told the Senate Banking Committee that the U.S. economy may not be out of the woods yet. The warning echoed comments he made to the House Financial Services Committee on July 18 during the first part of his twice-yearly testimony on monetary policy.
The central banker hinted the Fed was open to the idea of more interest rate reductions to shore up the economy on top of the six rate cuts the Fed has engineered this year.
As senators grilled him on economic issues, Greenspan said changes in monetary policy are still able to lift the economy. He also said inflation remains tame.
Contrary to money managers’ impressions, Greenspan said consumers were still confident about the economy. He noted fallingenergy prices were boosting corporate profits and putting more money into consumers’ pockets.
Among Tuesday’s highlights:
* Oil stocks slumped after reporting quarterly results as investors bet this could be their last show of increased profits for some time as energy prices decline. Exxon Mobil, the No. 1 U.S. oil company and a component of the Dow industrials, posted higher earnings, thanks to lofty crude oil and natural gas prices and robust profit from refining. Exxon dropped $1.53 to $40.97. No. 2 oil company Chevron also slid, despite posting better earnings. Its shares fell $2.46 to $85.18.
* Utility stocks fell sharply on expectations of lower power prices and falling profit margins. The Dow Jones utilities average lost 3.5% and is down nearly 10% during the last five trading sessions. Among the losers: Enron, down $3.42 to $43.24; Dynegy, off $2.75 to $43; Calpine, off $4.25 to $33.90; and Duke Energy, down $2.06 to $36.88.
* Fast food giant McDonald’s, another Dow component, gained 62 cents to $28.39 after reporting profit in line with Wall Street’s forecasts, even as a strong U.S. dollar and lingering concernsover “mad-cow” disease hurt earnings.
* Gold stocks rose on a flurry of interest from disenchanted stock investors. The S&P; gold index rose almost 4% as Newmont Mining climbed 94 cents to $20.64 andBarrick Gold gained 33 cents to $15.66.
Market Roundup, C6-C7
