Tech Sector Woes Drag Stocks Lower
The Nasdaq composite index tumbled 3.3% Thursday to its lowest level in almost four months as investors, unswayed by positive economic data, again dumped technology and telecom stocks.
The Dow industrials slid 1.1% as uncertainty about the strength of this year’s expected recovery of corporate profits dogged blue-chip stocks as well.
Intel was a drag on the key indexes, sliding $1.96 to $29.48 after Banc of America analysts cut their earnings estimates for the largest chip maker, citing higher inventory levels. Other hard-hit tech and telecom stocks included Cisco Systems, BellSouth, AOL Time Warner and Ciena.
“The economic news is extremely encouraging, but it seems we’ve got to see earnings come through before people get their confidence back,” said Rod Smyth, chief investment strategist at First Union Securities in Richmond, Va.
Nasdaq’s drop of 59.33 points to 1,716.24 sent the tech-heavy index to its lowest close since Oct. 31. In the last six weeks, Nasdaq has given back 54% of the big 636-point gain it racked up from Sept. 21 through Jan. 4.
The Dow Jones industrial average slipped 106.49 points to 9,834.68, while the broader Standard & Poor’s 500 index fell 17.03 points, or 1.6%, to 1,080.95.
Losers led winners 3 to 2 on the New York Stock Exchange and almost 2 to 1 on Nasdaq. Volume was moderate.
The Conference Board said its index of leading economic indicators posted a better-than-expected climb in January, and other reports also offered encouragement for the U.S. economy in 2002.
Smyth said professional traders such as hedge fund managers, who often sell stocks “short”--betting on a decline--have fueled recent market volatility. Nasdaq closed at its low for the day. The Dow--up 88 points at its high--took a 195-point swing from its peak to its close.
“The professionals are jumping on whatever momentum they see,” Smyth said. “But the [individual] investors are just kind of frozen. They’re not causing these moves.”
Despite the choppy market, prospects remain strong for overall profit growth in the S&P; 500 in the second quarter, said Joe Cooper, research analyst at earnings tracker Thomson Financial/First Call in Boston. He noted that negative profit guidance from companies and downward earnings revisions from Wall Street analysts are off sharply from last year’s pace, indicating stability.
Thomson Financial expects second-quarter S&P; 500 operating profits to rise about 9% compared with the second quarter of 2001. That would mark the first positive year-over-year comparison since the fourth quarter of 2000. The issue facing investors may be the magnitude of this year’s profit recovery, Cooper said.
“Analysts are still projecting a moonshot,” he said. Brokerage analysts expect S&P; 500 profits to jump 17.3% in 2002, while Thomson Financial forecasts only a 6% rise. Questions about credit quality could hurt the financial sector, he said, where expectations are highly optimistic.
In other trading, U.S. Treasury yields fell as skittish investors fled to government debt. The yield on the 10-year Treasury note eased to 4.85% from 4.89% Wednesday.
Among the day’s highlights:
* Cisco slumped $1.58 to $15.11 after published reports that executives held stakes in a partnership that benefited in the 1990s from ties to the computer-networking equipment giant, raising the issue of a potential conflict of interest. The company declined comment.
* Ciena dropped $1.10 to $7.60--a 12.6% loss--after slashing its second-quarter revenue guidance, further pressuring the tech sector. Ciena reported a first-quarter operating loss of $56.7 million, or 17 cents a share, compared with year-ago profit of $54.7 million, or 18 cents, as sales fell 54% to $162 million. Analysts expected a loss of 20 cents on sales of $164.6 million. The Amex networking index--which includes Ciena and Cisco--dropped 5.9% as all 15 of its members were down for the day.
* IBM lost $2.93 to $96.38 as accounting worries continued to dog the biggest computer company, whose stock is down 20% this year.
* BellSouth lost $2.50 to $37.95 after cutting its 2002 profit forecast because of slowing sales and currency devaluations in Argentina and Venezuela.
* AOL Time Warner dropped $1.20 to $23 after a Wall Street Journal report said Janus Capital has been a net seller of the shares even as some of its mutual fund managers have praised the stock.
* Newspaper stocks fell after Morgan Stanley downgraded its outlook for the group. Tribune, publisher of The Los Angeles Times, lost $1.68 to $41.84; New York Times fell $2.20 to $44.20.
* Petco Animal Supplies raised $275.5 million in an initial public stock offering, returning to public ownership less than 18 months after being taken private in a leveraged buyout. San Diego-based Petco, the second-largest pet supply chain, sold 14.5 million shares at $19 each, in the middle of its planned range of $18 to $20. The shares will begin trading today under the symbol PETC on the Nasdaq Stock Market.
* Overseas, Japan’s Nikkei-225 rallied 4.7%, its biggest one-day gain in nearly a year, as bargain hunters stepped into the battered market. However, Japanese stocks were lower in early trading today.
Market Roundup, C6-7
