Stocks Take Dive as Investors Cash Out
Stocks fell sharply Wednesday, knocking the Dow industrials down 149 points, as a flurry of mixed earnings reports raised new questions about the sustainability of the economic rebound.
Third-quarter profits were mostly strong, but companies such as drug giant Merck and Internet retailer Amazon.com were guarded about their outlooks for 2004, spurring jittery investors to cash out.
“Some people have made an awful lot of money in the market since March. They’re looking for an excuse to take profits, and they’re getting it,” said Steve Colton, manager of the Phoenix-Oakhurst Growth & Income fund in Scotts Valley, Calif.
The Dow Jones industrial average fell 149.40 points, or 1.5%, to 9,598.24; the broader Standard & Poor’s 500 index slid 15.67 points, or 1.5%, to 1,030.36; and the technology-heavy Nasdaq composite index dropped 42.83 points, or 2.2%, to 1,898.07. It was the biggest one-day loss for all three indexes in a month.
The blue-chip benchmark S&P; 500 still is up 28.7% from its low March 11.
In heavy trading Wednesday, losers beat winners by more than 2 to 1 on the New York Stock Exchange and 3 to 1 on Nasdaq.
Setting the shaky tone, Amazon.com beat Wall Street’s bottom-line expectations for the latest quarter but said next year’s sales growth might slow. The stock fell $5.32 to $54.03.
“Amazon is a perfect example of the valuation issue,” said Russ Koesterich, domestic equity strategist at State Street Global Markets. “There are huge expectations built into that stock.”
Amazon.com -- whose stock is up nearly threefold year to date -- is trading at 90 times this year’s per-share earnings estimate and 61 times next year’s estimate, based on Wall Street analysts’ average forecasts, compared with multiples of 22 and 19, respectively, for the S&P; 500. And even the S&P; 500 is trading at a modestly higher-than-usual price-to-earnings ratio.
Dow stock Merck, which fell shy of expectations for third-quarter revenue and profit because of stiffer competition from generic-drug makers, said it would slash 4,400 jobs. The stock dropped $3.19 to $45.72.
After the close of regular trading, business software company Computer Associates posted a wider net loss for the quarter, weighed down by litigation settlement charges, sending its shares down to $23.80 in after-hours trading after closing at $25.15, down 7 cents, during the regular session.
There were some bright spots on the earnings front, however, with third-quarter S&P; 500 profit running 18% ahead of a year ago. McDonald’s, one of only three winners among the 30 Dow members, edged up 16 cents to $23.90 after beating third-quarter profit forecasts.
Black & Decker climbed $2.59 to $45.96 after reporting strong revenue as well as gains from cost cutting, and BellSouth rose $1.22 to $25 after notching its first sales increase in seven quarters.
Lucent Technologies rose 33 cents to $2.78 for the biggest gain in the S&P; 500. The largest U.S. telecom-equipment maker, which had about $30 billion of losses in the last three years, posted its first profit in 14 quarters.
Still, Wall Street pros are concerned about whether the pace of economic improvement can continue, especially with the government hard-pressed to approve more tax cuts amid budget deficits and the Federal Reserve left with little room to cut already-low interest rates.
“To justify these stock prices, earnings will have to be very strong into 2004, and that is in question,” Koesterich said.
In the bond market, the yield on the benchmark 10-year Treasury note slid to 4.25% from Tuesday’s close of 4.35% as investors shifted into fixed income.
In other highlights:
* Disk drive maker Seagate Technology tumbled $7.22 to $22.28 after disclosing a regulatory inquiry and warning that sales growth may slow in 2004. Among its rivals, Maxtor fell $2.60 to $12.70 and Western Digital lost $1.97 to $12.30.
* Biotech behemoth Amgen slumped $3.35 to $60.30 a day after beating third-quarter profit estimates but guiding analysts down for the current quarter.
* J.P. Morgan Chase lost $1.69 to $34.98 after reporting third-quarter revenue below Wall Street expectations.
* In the oil-services sector, Schlumberger sank $3.41 to $47.95 after reporting a third-quarter net loss late Tuesday.
* Chemical maker DuPont, another Dow member, sagged $1.75 to $39.20 after reporting a third-quarter loss.
* Global markets followed Wall Street lower. Key indexes slid 2.5% in Germany, 1.8% in France, 1.5% in Britain, 1.3% in Japan and 1.2% in Brazil.
