Indexes Edge Lower on Sour Notes
Stocks continued their recent slump Tuesday after anemic forecasts from media giant AOL Time Warner and mobile phone leader Nokia fanned doubts about the strength of the economic recovery and Wall Street’s two-month rally.
Investors also were rattled by reports that U.S. automakers’ sales fell in November. And Merrill Lynch’s top U.S. strategist sounded another sour note, saying investors should move some money out of stocks and into bonds because the market appears “very speculative.”
“With earnings season over and no positive economic news to propel it forward, it looks like the eight-week rally may be running out of steam,” said Stephen Carl, head of trading at Williams Capital Group.
The Dow Jones industrial average closed down 119.64 points, or 1.4%, at 8,742.93. The broader Standard & Poor’s 500 index fell 13.78 points, or 1.5%, to 920.75.
Both indexes have now fallen for three consecutive trading sessions. Before the recent slide, the Dow industrials had climbed 22% since Oct. 9.
Meanwhile, the technology-laced Nasdaq composite index lost 35.82 points, or 2.4%, to close at 1,448.96 Tuesday.
Losers outnumbered winners by 3 to 2 on the New York Stock Exchange and by 2 to 1 on Nasdaq in moderate trading.
AOL Time Warner tumbled $2.36, or 14%, to $14.21, making it the Big Board’s most-active stock and among its top percentage losers.
The world’s largest media company said advertising sales at its America Online Internet service would fall 50% next year, and signaled it doesn’t expect a turnaround until 2004.
Nokia lost 93 cents to $19.22 after the world’s largest handset maker said it expects the market in mobile infrastructure to shrink about 10% in 2003.
Other cell phone makers fell in tandem, with Motorola off $1.19 to $10.51 and Ericsson down 38 cents to $9.16. Cisco Systems, the No. 1 maker of telecom equipment, slipped 54 cents to $14.52.
Nokia’s outlook also weighed on semiconductor stocks because the companies rely on handset makers to buy their chips. The SOX index of semiconductor stocks dropped 5.2%, with KLA-Tencor, down $2.46 to $42.28, and Novellus Systems, off $1.69 to $34.39, among the biggest losers.
“Nokia is the most meaningful puzzle piece for the semiconductor index -- it’s the proxy for some of the largest customers for semiconductors,” said Gary Wedbush, head of trading at investment bank Wedbush Morgan Securities in Los Angeles.
Automakers’ stocks fell after Ford Motor, General Motors and DaimlerChrysler’s Chrysler unit all reported lower November sales. Ford plunged $1.49, or 13%, to $9.96; GM lost $2.05 to $37.90; and DaimlerChrysler fell $1.82 to $33.75.
Merrill’s top U.S. strategist, Richard Bernstein, brought more gloom when he cut his stock allocation by 5 percentage points and raised his bond recommendation by the same amount, putting stocks at 45% and bonds at 35% in his model portfolio. Cash allocation remained untouched at 20%.
The move drew investors to the bond market, lowering Treasury yields. The yield on the benchmark 10-year Treasury note slipped to 4.2% from Monday’s close of 4.23%
Despite the day’s declines, and blue-chip stocks’ three-day slump, some said a market rally into the end of the year is still in the works.
“There’s a little bit of cooling off of the market from a pretty nice run we’ve had,” said Todd Clark, head of listed trading at Wells Fargo Securities. “I don’t view it as anything besides a [short-term] pullback.”
In other highlights:
* Dow member Merck dropped $1.13 to $58.82 ahead of its yearly forecast on Thursday. The drug maker’s shares fell as much as $4.79 earlier in the session but then partially recovered after the company said it was reaffirming its outlook.
* Airline stocks fell after Continental Airlines and AMR, the parent of American Airlines, reported disappointing November traffic. Continental fell $1.25 to $7.90, AMR lost 86 cents to $6.86 and Delta Air Lines fell $1.18 to $12.21.
* Brokerage downgrades hurt several stocks. Supermarket operator Albertson’s fell $1.31 to $22.26 on a downgrade from J.P. Morgan, while Marriott International declined $1.22 to $34.47 on a downgrade from Deutsche Securities.
* Wall Street’s woes spilled over to Europe. Key indexes fell 2.3% in France, 1.9% in Britain and 3% in Germany.
Market Roundup, C8-9
