Stocks Hit 2-Week Lows on Bleak Tech Outlook
Stocks closed at their lowest levels in two weeks Wednesday as a hodgepodge of bad news--including job cuts at Nortel Networks and a downbeat brokerage report on Sun Microsystems--eroded hopes for a swift upturn in corporate profits.
“People are worried about earnings, and the news isn’t getting any better,” Ken Turek, investment manager at Northern Trust Corp., told Bloomberg News.
All three major market gauges closed at their lowest levels since Aug. 13, with tech shares leading the way down. The Nasdaq composite index, loaded with tech and telecom stocks, dropped 33.40 points, or 2.5%, to 1,314.38. That came on top of Tuesday’s 3.2% swoon.
The blue-chip Dow Jones industrial average fell 130.32 points, or 1.5%, to 8,694.09. The S&P; 500 index lost 16.95 points, or 1.8%, to 917.87.
Losers trounced winners by 2 to 1 on both Nasdaq and the New York Stock Exchange. Trading volumes were thin, with much of Wall Street on vacation ahead of Monday’s Labor Day holiday.
Nasdaq has given up about half of the 18% gain it rang up after hitting a five-year low Aug. 5. The S&P; 500 has given back about a quarter of the 20% it gained in the weeks after July 23, when the benchmark index closed at a 5 1/2-year low.
And since the Dow closed above 9,000 on Aug. 22--the first time in six weeks--it has lost 360 points, an indication of how cautious investors remain after the market’s May-July decline.
On Wednesday, battered telecom equipment giant Nortel cut its revenue forecast and said it would trim an additional 7,000 jobs. Nortel fell 19 cents to $1.04, down 15%. Rival Lucent Technologies fell 20 cents, or 11%, to $1.69. The Amex index of 15 telecom stocks lost 3.4%.
Sun fell 28 cents, or nearly 7%, to $3.96. Goldman Sachs said Sun probably will not meet profit estimates, given the weakness in information technology spending.
The decline in stocks fueled demand for fixed-rate government debt, lifting Treasuries.
“People are concerned about how strong this [economic] recovery will actually be, which is hurting stocks and helping bonds,” said Mark MacQueen, a fixed-income manager at Sage Advisory Services.
The yield on the benchmark 10-year Treasury note slipped to 4.21% from 4.28% on Tuesday. The yield on the two-year T-note fell to 2.17% from 2.23% after $27 billion of new notes were auctioned by the government. The amount matches a record sold in each of the last three months, reflecting the government’s need to finance the first budget deficit since 1997.
The Treasury sold the two-year notes at a yield of 2.22%, the lowest yield in auction history and below traders’ expectations, indicating demand for the securities was greater than anticipated.
The dollar rose on speculation the Treasury auction prompted some investors to buy the currency to invest in government debt.
In commodities trading, oil prices fell for a second day, dipping 49 cents to $28.34 a barrel in New York amid signs that OPEC may raise production quotas when it meets next month.
In other highlights Wednesday:
* Brokerage stocks took a hit after Prudential Securities cut its earnings estimates for Goldman Sachs Group and Lehman Bros. Holdings, citing the weak stock market and anemic filings for new stock offerings. Goldman fell $2.02 to $77.08, and Lehman fell $2.02 to $56.22. The Amex broker-dealer index fell more than 3%.
* Qwest Communications International surged 9%, up 24 cents at $3.01, amid rumors the telephone and data services company was close to a deal with its banks to amend the terms of a $3.39-billion credit agreement, analysts said. The company declined to comment.
* Another bright spot was InterMune, which jumped $4.66, or 26%, to $22.66 after results from a late-stage trial of its drug for a fatal lung disease showed it helped prolong life in some patients.
* Chip stocks were hit again by bad news after being slammed Tuesday by a lackluster outlook from Intel that dampened hopes for a rebound in the sector. Intel, which was the most actively traded stock on Nasdaq, fell 34 cents to $16.84.
Also, Semtech fell $4.87 to $14.05 after the chip maker forecast third-quarter sales would fall due to weak consumer demand. A key index of chip stocks, which has tumbled about 16% in the last week, fell 4%.
* Oil shares were weak, sagging in line with crude oil prices. Oil giant and Dow component Exxon Mobil dropped $1.28 to $35.62. The Amex oil index fell more than 2%.
* Philip Morris jumped $1.41 to $49.31 after the tobacco giant raised its quarterly divided 10.3%.
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Market Roundup, C6-7
