Stocks Drop on Profit Concerns
Stocks tumbled Wednesday amid news of slack retail sales and worries about sagging profits at key technology firms.
Tech stocks got off to a bad start after investment bank J.P. Morgan trimmed its earnings estimates on semiconductor giant Intel. That sent Intel shares down 5% and slammed computer chip shares amid concerns that better earnings could be further off than hoped.
Meanwhile, shares of General Electric fell $1.10 to $40 after its finance arm sold $11 billion of bonds--the second-largest U.S. corporate debt sale ever. GE Capital, which provides half of GE’s revenue, almost doubled its planned sale of $6 billion in bonds to take advantage of interest costs at “historic lows” and strong demand for top-rated bonds, said a GE spokeswoman.
The Dow Jones industrial average surrendered 130.5 points, or 1.2%, to 10,501.85 after hitting its highest close since June on Tuesday and climbing about 9% in the last three weeks.
The tech-heavy Nasdaq composite index lost 35.09 points, or 1.9%, to 1,862.03, while the broad Standard & Poor’s 500 index fell 11.49 points, or 1%, to 1,154.09.
Losers led winners by 9 to 7 on the New York Stock Exchange and by 4 to 3 on Nasdaq. Trading was moderate.
Adding to the market’s glum mood were remarks by Federal Reserve Chairman Alan Greenspan, who said U.S. economic activity is firming, but he sees only a gradual recovery in business investment.
The remarks, though not drastically different from views he expressed in recent weeks, were seen as less optimistic than some on Wall Street had expected.
“The chairman is saying things are good but not great,” said Larry Wachtel, market analyst at Prudential Securities.
Retail sales edged up 0.3% in February, falling short of forecasts of a 0.9% gain. The news provided more evidence that the economy is emerging from the recession that began last March, but signaled the possibility of only a moderate level of consumer demand, raising questions about the strength of the expected rebound in the economy.
The retail data helped push bond yields lower: The yield on the benchmark 10-year Treasury note eased to 5.29% from 5.31% on Tuesday.
Among Wednesday’s highlights:
* Following Intel’s lead, the SOX semiconductor index sank 4%. KLA Tencor lost $2.86 to $63.25 after Morgan Stanley downgraded the chip equipment firm, saying the stock was too expensive. Chip maker Cree fell $2.09 to $14.16, a loss of nearly 13%. The firm cut its quarterly sales and earnings forecasts, citing product delays and weak short-term demand.
* Lucent Technologies fell 73 cents to an all-time low of $4.92, leading many telecom stocks lower again. The company on Tuesday said its return to profitability would be delayed by the tech-spending slump.
Late Wednesday, Lucent said it raised $1.75 billion through the sale of convertible preferred shares.
* Among other telecom stocks, Nortel Networks fell 44 cents to $5.21, WorldCom slid 54 cents to $7.39 and Sprint PCS slid 97 cents to $11.08. Also, Comverse Technology lost $2.71 to $13.14 after warning it will post a loss this quarter. Goldman Sachs removed the stock from its recommended list.
* McDonald’s and Wendy’s International fell after state and federal officials said a small number of cattle in Kansas showing symptoms similar to foot-and-mouth disease were being tested, but there was no evidence yet of the disease. McDonald’s lost 45 cents to $27.90 and Wendy’s dropped 7 cents to $31.56.
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Market Roundup, C8-9
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