Stocks Fall Sharply on Earnings Fears
Investors sent stocks sharply lower for a second straight session Tuesday as worries about second-quarter earnings reports overshadowed President Bush’s proposal to increase the penalties for corporate fraud.
The losses, which followed a sell-off Monday, erased most of what was left of Friday’s 324-point rebound rally. Drug and soft drink stocks were among the biggest losers, with only gold-mining shares showing real strength. The dollar fell, as did bond yields.
Analysts said that after months of accounting scandals and disappointing financial results, it will take more than a few words from the president to convince investors that it is safe to come back to the market.
“We’re just coming into earnings season now,” said Will Braman, chief investment officer of John Hancock Funds. “It’s time for ‘show us the money,’ and investors’ expectations are not very high. There is a lot of skepticism. The numbers we get are going to be pawed over and looked at very critically.”
The Dow Jones industrial average closed down 178.81 points, or 1.9%, at 9,096.09. Microsoft, up 29 cents to $53.21, was the only gainer among the 30 Dow stocks.
Broader stock gauges also retreated. The Standard & Poor’s 500 index fell 24.15 points, or 2.5%, to 952.83. And the Nasdaq composite index lost 24.49 points, or 1.7%, to 1,381.12, bringing its loss so far this week to 4.6%.
Losers led winners by 4 to 3 on Nasdaq and by 3 to 2 on the New York Stock Exchange in moderate trading.
In a widely anticipated speech on Wall Street Tuesday morning, Bush called for longer prison sentences for executives who defraud the public and stronger powers for the Securities and Exchange Commission. He also wants to put together a task force to pursue and prosecute corporate fraud.
Although some analysts doubted whether Bush’s comments were strong enough to restore investor confidence shaken by repeated accounting scandals, some investment pros said the market’s sell-off should not be construed as disappointment in the president’s corporate governance proposals.
“There will always be skeptics who say it isn’t enough,” said Art Bonnel, manager of the Bonnel Growth fund.
Other strategists said the market’s troubles probably will continue until a more optimistic corporate earnings picture emerges.
“The one thing that could really turn this market around is the earnings reports,” said Phil Dow, director of equity strategy at brokerage RBC Dain Rauscher. “People want to see positive comments from the chief financial officers about the revenue picture. That’s what has been missing.”
General Electric’s earnings, expected Friday, will be watched closely, he said, and second-quarter reporting season begins in earnest next week with about 600 companies expected to announce results.
Among Tuesday’s highlights:
* Drug maker Wyeth plummeted $11.94, or 24.3%, to $37.30 on news a government study had raised questions about Wyeth’s hormone supplements. The selling spread to other drug companies, including Merck, which lost $2.06 to $45.75. Merck fell Monday on concerns about its accounting methods.
* Chip stocks pulled back after Merrill Lynch and Deutsche Bank reduced their forecasts for many companies in the group, citing weak order prospects. Applied Materials dropped $1.28 to $17.72, while Texas Instruments lost 85 cents to $23.30 and Intel slid 54 cents to $17.96.
* Retail stocks were more mixed. Pacific Sunwear rose $2.01 to $24.48 after it increased its second-quarter earnings forecast. But Tiffany fell $3.09 to $30.49 after warning its second-quarter profit will fall to the low end of its previously expected range.
* Two software companies were among the day’s losers. Shares of Retek, Nasdaq’s leading percentage loser, plunged 63%, or $10.85, to $6.46. Citrix Systems fell 92 cents, or 16%, to $5. The two gave bleak financial forecasts and pressured other companies in the software sector.
* The S&P; index of gold stocks rose 5.8% as gold climbed $4 to $316.10 an ounce. Among the gainers: Newmont Mining, up $1.71 to $28.62, and Goldcorp, up 88 cents to $10.78.
* The battered telecom sector showed some life. Lucent Technologies rose 23 cents to $2.04, while Qwest Communications rose 50 cents, or about 24%, to $2.60.
* Bond yields dipped as the decline in stock prices heightened speculation that the Federal Reserve won’t raise interest rates until next year. The yield on the benchmark 10-year Treasury note fell to 4.73% from 4.80% Monday.
Times staff writer Josh Friedman contributed to this report, and Associated Press, Reuters and Bloomberg News were used in compiling it.
Market Roundup, C6-7
