Telecom, Electric Utility Stocks Lead the Retreat
Wall Street’s mood soured Wednesday as fresh corporate profit warnings triggered selling late in the session.
Telecom and electric utility stocks were particularly weak.
The Nasdaq composite index fell 48.29 points, or 2.2%, to 2,121.66, the lowest close since May 31.
The Dow Jones industrials lost 76.76 points, or 0.7%, to 10,871.62, the lowest since May 11.
Stocks held up for most of the day before sliding in the final two hours. At the close, losers outnumbered winners by 20 to 17 on Nasdaq, though they were evenly matched on the New York Stock Exchange. Volume was moderate.
Traders said another wave of earnings warnings from such companies as Avaya, Maytag and Reliant Energy raised new concerns that a recovery in profits may not occur before sometime in 2002.
Many investors who bought into the market’s spring rally had been betting on an earnings turnaround by late this year, analysts say.
The Federal Reserve’s latest survey of the economy, released at midday, showed that conditions remained soft nationwide.
In the bond market, Treasury yields eased further on the Fed report, on hopes the central bank will again cut short-term rates when it meets June 26 and 27. The yield on the two-year T-note eased to 4.04% from 4.06%, and now is the lowest since 1998. The two-year note yielded 4.31% a month ago.
In commodities trading, unleaded gasoline futures in New York fell 2% to their lowest since March 20 on news that U.S. gasoline inventories rose for an eighth straight week.
Near-term gasoline futures fell to 87.33 cents a gallon.
Among Wednesday’s highlights:
* Telecom shares were under pressure after Avaya, which makes communications systems, lowered revenue estimates late Tuesday and said it will cut 3,000 jobs. Avaya slid $1.64 to $13.36.
Avaya’s former parent, Lucent Technologies, slumped 70 cents, or nearly 9%, to $7.24, one day after Standard & Poor’s cut the firm’s credit rating to junk status.
Also in the telecom sector, Scientific Atlanta fell $6.21 to $42.97, after analysts said the company appeared less bullish about its sales prospects for 2002.
* Utility stocks were under pressure after Reliant Energy warned that 2002 earnings won’t meet forecasts. The stock fell $5.49 to $37.50. Losses in other electric shares pulled the Dow utilities index down 2.8% to its lowest since early April.
* Among consumer issues, Maytag fell as low as $31 after its earnings warning but closed off 31 cents at $32.17. Contact lens maker Bausch & Lomb fell $1.23 to $43.77 after saying this quarter’s earnings will be “significantly” below forecasts, in part because of tougher competition.
* Kraft Foods’ initial public stock offering, the second largest in U.S. history, was a dud on its first trading day: The shares added just 25 cents to $31.25. But the stock on Tuesday had been priced above its expected range, traders noted.
* Among Southland stocks, engineering issues were among the day’s winners. Fluor rose $1.98 to $54.12 and Jacobs Engineering gained $1.54 to $68.32.
Market Roundup, C7-8
