Key Indexes Turn Lower as Telecom Stocks Fall
Shares of telecom equipment makers led major indexes to their first loss in three sessions Tuesday after Nortel Networks said its customers scaled back purchases in the last month.
Lucent Technologies, Qualcomm and Ciena dropped with Nortel amid concern that businesses may be reluctant to invest in technology even as the economy recovers.
“We’re not getting the reinforcement from corporate America that we need,” said Jeff Swensen, a trader at John Hancock Advisers Inc.
The Standard & Poor’s 500 index fell 4.44 points, or 0.4%, to 1,107.50, with telecom equipment makers accounting for one-fifth of the drop. The Nasdaq composite index slid 12.45 points, or 0.7%, to 1,834.21. The Dow Jones industrial average declined 21.04 points, or 0.2%, to 9,863.74 after trading as high as 9,906.
The New York Stock Exchange had its slowest day of the year, with slightly more than 1 billion shares traded on the exchange floor. Rising and falling stocks were about even on the NYSE and Nasdaq.
Stocks have fallen this year partly on speculation that some U.S. companies have not been forthcoming with investors about their finances. Nortel added to that concern Monday when it said it fired Chief Financial Officer Terry Hungle because of personal trades he made that violated retirement plan investing rules.
Nortel shares declined 42 cents to $6.42. Although it said customers cut spending in the last 25 days, the firm maintained its forecast that first-quarter sales will fall about 10% from the fourth quarter. The company expects to return to profitability by year’s end.
Nortel’s announcement suggests that the economy may not be recovering as fast as many corporate executives had expected, said Brian Pears, trader at Victory Capital Management. He said many investors bought Nortel and Lucent late last year expecting a turnaround.
Lucent, North America’s largest phone equipment maker, fell 26 cents to $5.99. Ciena, the second-biggest maker of optical network equipment in the U.S., dropped 39 cents to $10.08. Qualcomm, which licenses patents for mobile phones, lost 78 cents to $40.50. The Amex index of networking stocks lost 3.3% and is off 13.7% year to date.
Avaya, spun off from Lucent in October 2000, had its bond rating cut to “junk” status by Standard & Poor’s after the maker of office phone equipment agreed to pledge its domestic assets to secure a $1.25-billion line of credit. Its shares fell 78 cents to $5.70.
In other market news:
* Investors shunned Treasury bonds for the fourth day in five after General Electric Capital and mortgage buyer Freddie Mac sold $9.5 billion of bonds, swelling supply and luring money from government securities. The yield on the benchmark 10-year Treasury bond rose to 4.98% from 4.91% Monday.
* Harley-Davidson fell $3.04 to $50.99 as investors worried about a possible slowdown in demand for its distinctive heavyweight motorcycles.
Overseas, a rally in bank stocks helped boost the Japanese market more than 2% as investors bet that the government is preparing another bailout of an industry mired in bad loans. The government wants to help banks sell shareholdings that have fallen in value so they can avoid slashing their capital, as would be required under new accounting rules. The Topix index in Tokyo rose 2.5% on Tuesday and was higher in early trading today.
*
Market Roundup, C8-9
