Dismal Forecasts Dig Into Stocks
A steady stream of grim profit forecasts and new symptoms of economic anemia spelled trouble for the stock market Friday, driving the Nasdaq composite index to its worst weekly loss this year.
The tech-heavy Nasdaq fell 15.64 points, or 0.8%, to 2,028.43, a seven-week low.
The Dow Jones industrial average lost 66.49 points, or 0.6%, to 10,623.64, also a seven-week low.
Nasdaq, which dropped below the key 2,000-point level with a fall of more than 2% earlier in the day, posted its sixth straight down session. It fell 8.4% for the week, its biggest weekly decline this year.
The Dow was down 3.2% from last Friday’s close.
Prime culprits in Friday’s slump were telecom equipment maker Nortel Networks and JDS Uniphase, which makes fiber-optic communications products. Both warned of disappointing results as customers continue to cut back or delay orders.
The warnings, coupled with new government data showing a deteriorating economy, helped send stocks sharply lower at the start of trading.
“Those are the [once] super-hot groups that are now a disaster,” said Scott Bleier, chief investment strategist at Prime Charter Ltd., referring to tech and telecom shares.
“The stock market took these companies to so many billions of dollars in market value that it would take a miracle to justify their valuations.”
So far this quarter, 498 companies in all have said their near-term earnings will fall short of expectations--a fivefold increase from a year ago; 132 have said they would be on target; and 138 have said results would be better than expected, according to market research firm First Call/Thomson Financial.
Earnings warnings haven’t been restricted to tech firms. On Friday, McDonald’s, the world’s largest restaurant company, fell $1.29 to $28.67 after saying quarterly earnings would fall below Wall Street’s expectations because of the strong U.S. dollar and fears of “mad-cow” disease in Europe.
Also, Procter & Gamble, another Dow stock, dropped $2.26 to $62.60 after it said growth would be below long-term goals.
Many investors who in April and May had snapped up stocks, betting on a recovery in corporate earnings by year’s end, now aren’t so sure, analysts say.
The Federal Reserve said Friday that U.S. factories, mines and utilities operated in May at their slowest pace in more than 17 years, reflecting the weakness in the manufacturing sector.
Also, a closely watched barometer of consumer sentiment showed Americans felt slightly less confident about the outlook for the economy in early June. And the Labor Department reported the consumer price index rose 0.4% in May, following a 0.3% gain in April.
“Triple witching,” the quarterly expiration of stock-index futures, stock-index options and stock options, exaggerated price swings in the market Friday and also increased trading volume, which has been slack recently.
More than 1.6 billion shares traded on the New York Stock Exchange, 30% above the daily average for the last three months. Volume on Nasdaq was 2 billion shares. Losers led gainers by 8 to 7 on the NYSE and by 11 to 8 on Nasdaq.
Nortel closed off 74 cents at $9.86 after falling as low as $8.75. The company announced new job cuts and predicted a $19.2-billion loss for the second quarter as customers cut back orders.
JDS sank $1.37 to $12.44 after warning late Thursday of an unexpected loss on weak revenue amid the telecom spending slump.
The companies’ gloomy news cast a pall over their peers. Telecom equipment maker Lucent Technologies fell 44 cents to $6.31, Corning slid $1.50 to $14.50 and Andrew Corp., which also issued a warning, fell $1.15 to $16.51.
Software giant Microsoft, which fell as low as $66.40 on rumors that it could issue a profit warning, closed off 88 cents at $68.02. A spokesman said the company does not comment on speculation.
Other tech losers included IBM, down $2.15 to $113.60; ONI Systems, down $2.04 to $24.65; Sun Microsystems, off 31 cents to $15.19; and International Rectifier, which plummeted $18.05 to $37.20 after its earnings warning Thursday.
But Adobe Systems rose 55 cents to $39.56. The publishing-software maker reported earnings and sales that beat expectations.
The fresh economic data helped push shorter-term Treasury yields down again, as investors bet the Fed could cut interest rates another half-point when policymakers meet June 26-27.
The yield on the two-year T-note fell from Thursday’s close of 4% to 3.97%--its lowest since October 1998. But the 10-year T-note yield edged up to 5.24% from 5.23%.
