3-Day Rally Ends on Earnings Worries
Stocks slipped Monday as the three-day New Year rally fizzled and nagging worries about falling earnings overshadowed upbeat forecasts from Compaq Computer and Circuit City Stores.
“The market had a very powerful move in the first three days of the year,” said Robert Stovall, analyst at Prudential Securities. “The enthusiasm of last week can’t continue.” The Dow Jones industrial average rose 2.4% in the year’s first three trading sessions, while the tech-laden Nasdaq composite index gained 5.6%.
The Dow dropped 62.69 points Monday, or 0.6%, to 10,197.05, while the Standard & Poor’s 500 index eased 7.62 points, or 0.7%, to 1,164.89. Nasdaq fell 22.28 points, or 1.1%, to 2,037.10.
Losers led gainers by 17 to 15 on the New York Stock Exchange and by 20 to 17 on Nasdaq. Trading was active.
In economic news, the Federal Reserve Bank of Atlanta president, Jack Guynn, said a rebound in economic growth might not arrive for six more months, in contrast to more optimistic private economists who say a recovery is already under way.
But Guynn also said the Federal Reserve--even after 11 interest rate cuts last year--has room to reduce rates further. He said there were “hints” the economy was stabilizing but it was too early to say it had turned the corner.
Bond yields fell as investors bet that the U.S. economy will remain shaky for the foreseeable future, making a Fed rate increase unlikely. The yield on the benchmark 10-year Treasury note fell to 5.04% from Friday’s close of 5.13%.
The possibility of more profit warnings ahead of the official earnings season, which begins in mid-January, added to a cautious mood on Wall Street. So far, the less-negative tone of profit forecasts has boosted sentiment and helped spark a three-week rally.
Of the 1,217 early profit announcements so far, 25% have been positive. That’s more than the 16% average in the first three quarters of 2001, according to Thomson Financial/First Call.
Compaq, the No. 2 personal computer maker, rose 29 cents to $11.68 after forecasting a quarterly profit on revenue of $8 billion rather than the loss seen earlier by the company, indicating the struggling PC industry experienced surprising holiday demand.
Circuit City, the No. 2 U.S. consumer electronics retailer, rallied $2.29 to $29.75. The company reported strong December sales and said fourth-quarter earnings would surpass the consensus estimate.
News of Circuit City’s strong holiday sales pushed up shares of rivals such as Best Buy, which hit a 52-week high of $76.60 during the session but ended down 4 cents at $73.84. RadioShack also rose, up $1.29 to $30.92.
In other market highlights:
* Coca-Cola dropped after it was downgraded by an analyst at J.P. Morgan Securities, who said expectations are too high. Coca-Cola slumped $1.21 to $45.22.
* ImClone Systems tumbled $7.66, or more than 17%, to $35.83. Regulators said they would not accept the biotech company’s application to sell its eagerly awaited colon cancer drug, Erbitux.
* Halliburton rose 81 cents to $11.03 after the company said it hasn’t lost another asbestos case and isn’t filing for bankruptcy. The stock tumbled 23% last week--hitting its lowest point in 15 years.
* Vignette, maker of software that enables companies to manage their Web sites, sank $1.45 to $4.02. The company expects quarterly revenue to be far below its previous guidance amid a continued reluctance by large corporations to spend heavily on technology.
