Dreary Profit News Weighs on Blue Chips
Stocks ended mixed Wednesday amid some downbeat earnings forecasts, while Treasury bond yields continued to rebound ahead of next week’s Federal Reserve meeting.
Crude oil prices fell on news of higher U.S. oil inventories.
The Dow Jones industrial average fell 29.22 points, or 0.3%, to 9,293.80, weighed down by Eastman Kodak’s profit warning and by disappointing outlooks from some other big-name companies. The Standard & Poor’s 500 stock index slipped 1.57 points, or 0.2%, to 1,010.09.
Losers outnumbered winners by 20 to 13 on the New York Stock Exchange.
But the Nasdaq market closed higher, with the composite index adding 8.70 points, or 0.5%, to a one-year high of 1,677.14. Strength in semiconductor stocks buoyed Nasdaq.
Wednesday’s batch of earnings warnings provided a “reality check,” Donna Van Vlack, head trader at Brandywine Asset Management, told Bloomberg News. Stocks have climbed “too far, too fast for what companies are saying,” she said.
The Dow has risen nearly 24% since March 11, in large part based on optimism about an economic -- and corporate profit -- revival in the second half.
But other analysts said the earnings warnings so far aren’t significant enough to dash investors’ hopes for improvement in the second half.
“There is an increasing amount of confidence that we are going to get the recovery we have been hoping for,” said Matt Brown, head of equity management at Wilmington Trust.
Action in the bond market this week appears to support that view: Some stronger-than-expected economic reports have pushed Treasury bond yields up from the 45-year lows reached Friday. The 10-year T-note yield jumped to 3.36% on Wednesday, up from 3.26% on Tuesday and the highest since June 2.
Recent economic data could mean the Fed won’t cut short-term interest rates when policymakers meet Tuesday and Wednesday, some analysts said. Until this week, a cut had been viewed as a foregone conclusion.
The Fed’s key rate already is at a generational low of 1.25%.
Still, the majority of economists surveyed by Bloomberg News believe the central bank will lower its rate by a quarter point next week.
That could further stoke optimism about the economy and drive more money into stocks, market bulls say.
“Right now, indications are that this could be more than a bear-market rally,” said Todd Salamone, director of trading at Schaeffer’s Investment Research in Cincinnati.
In commodities trading, near-term crude oil futures in New York dropped 71 cents to $30.36 a barrel after the government said U.S. oil stockpiles rose 3.9 million barrels to 288.3 million barrels last week.
The increase was larger than expected and helped allay concern that the nation could face a gasoline shortage this summer.
Among Wednesday’s highlights:
* Kodak, one of the 30 Dow stocks, tumbled $3.22 to $28.77 after warning that film sales are lagging as people travel less, especially in Asia.
Also, Walt Disney slid 53 cents to $20.61 after Merrill Lynch trimmed slightly its 2003 and 2004 earnings estimates on concerns about theme park and studio results.
* Other stocks losing ground on profit warnings: New York Times fell $2.91 to $45.63, and Clorox declined $2.96 to $42.29.
* Shares of brokerage firms Morgan Stanley and Bear Stearns declined after they reported earnings for the quarter ended May 31. Both said results were down from a year earlier, as improved profit from bond trading failed to offset weaker earnings from investment banking and stock trading.
“It’s still too early to call the bottom” for Wall Street, said Morgan Chief Financial Officer Steve Crawford. Morgan shares fell $2.78 to $46.89. Bear Stearns dropped $2.47 to $80.01.
* Semiconductor stocks got a boost after brokerage firm Lehman Bros. raised its ratings on PMC-Sierra, Vitesse Semiconductor and Applied Micro Circuits on sales optimism. PMC rose 93 cents to $13.33; Vitesse gained 56 cents to $5.62; Applied Micro rose 5 cents to $6.27.
* America West Airlines surged 83 cents to $5.70. Merrill Lynch raised its rating on the stock to “buy,” citing the airline’s cost cutting.
Market Roundup, C6-7
