Dow Drops Again; Bond Yields Rise
Blue chips fell for the third straight day Tuesday, toppling on profit warnings and layoff announcements from several companies, including Merrill Lynch.
The market also was awaiting a decision by the Federal Reserve, which was meeting Tuesday and today and is expected to cut interest rates by a quarter of a percentage point. The central bank has already cut rates five times this year, a total of 2.5 percentage points, to reinvigorate the economy.
Meanwhile, bond yields surged as investors were spooked by positive economic reports that may dampen the need for continued rate-cutting by the Fed.
The Dow Jones industrial average ended down 31.74 points, or 0.3%, at 10,472.48, after falling more than 100 points both Friday and Monday. The Dow was off more than 100 points in early trading Tuesday.
The market’s broader indicators finished mixed. The Nasdaq composite index advanced 13.75 points, or 0.7%, to 2,064.62, and the Standard & Poor’s 500 index slipped 1.84 points, or 0.2%, to 1,216.76.
Advancing issues outnumbered decliners slightly more than 3 to 2 on the New York Stock Exchange and by about 10 to 9 on Nasdaq. Trading was active.
Though earlier Fed rate cuts have inspired rallies, analysts say investors need signs that companies are beginning to benefit from the lower borrowing costs before they start buying again.
“The issue is not will the Federal Reserve cut interest rates. The issue is will there be a payoff, and if so, when?” said Hugh Johnson, chief investment officer for First Albany Corp.
The market punished the latest companies to announce profit warnings. Merrill Lynch lost $7.54 at $58.91 after the brokerage warned that second-quarter profit has suffered due to sluggish equity volume and will miss expectations. Merrill Lynch also said it has cut 3,300 jobs this year.
Restaurant chain Outback Steakhouse fell 70 cents to $27.25 after announcing it will miss analysts’ second-quarter earnings expectations of 52 cents a share.
Network equipment maker 3Com fell 19 cents to $4.84 before announcing at the end of the session that it lost 61 cents a share, 4 cents more than Wall Street was expecting. It slipped further, down another 21 cents, in extended-hours trading.
International Paper, a Dow component, eked out a small gain, up 10 cents at $35.50, after announcing Monday it was cutting 10% of its U.S. work force.
“Until the earnings environment turns, and the market perceives that, we’re in trouble,” said Gary Kaltbaum, market technician for Investors’ Edge Partners.
Technology issues fared mostly better Tuesday. Microsoft rose $1.29 to $70.14, and Intel advanced 39 cents to $28.97. Both helped curb the Dow’s loss.
And software maker Oracle rose 67 cents to $18.44. Oracle gained another 9 cents in after-hours trading after Chief Executive Larry Ellison said in a CNBC interview that business is improving.
The market since late May has been steadily giving back gains from its big spring rally, which grew out of hopes that the economy would improve in the second half of 2001.
On Tuesday, investors, overloaded by proof of how widespread the business slump is, all but ignored two stronger-than-expected reports on the economy.
Wall Street was seemingly unimpressed that consumer confidence rose for the second straight month in June. The New York-based Conference Board said its consumer confidence index rose to 117.9, better than what analysts were expecting. The market also looked past the fact that orders to U.S. factories for costly manufactured goods jumped 2.9% in May, easily beating the 0.4% rise many analysts were expecting, due to an especially strong increase in demand for cars and semiconductors.
The upbeat economic news took its toll on the bond market, where U.S. Treasury securities posted their biggest losses in a month as traders reacted to fears that the Fed may stop lowering interest rates after this week’s meeting.
The yield on the one-year Treasury bill, which moves in the opposite direction of its price, rose to 3.38% from Monday’s close of 3.32%. The yield on the 10-year Treasury note rose to 5.22% from 5.13% Monday.
“This is not a great environment for Treasuries,” fixed-income manager Tom Seay of Victory Gradison Capital Management told Bloomberg News.
* Market Roundup, C7-C8
