Stocks Slump as Quarter Begins
Wall Street opened the third quarter on Thursday with a sharp loss, hurt by earnings warnings, analyst downgrades of some big-name stocks and another jump in oil prices.
Bond yields eased for a third day as money flowed back into fixed-income securities.
Analysts said the markets’ shifts might have been magnified by the approach of the long holiday weekend, as some traders sought to lower their portfolio risk in case of bad news from the Middle East or a terrorist attack on U.S. soil.
Investors also were awaiting today’s government report on June employment trends, which was expected to show a large gain in new jobs.
The Dow Jones industrial average fell 101.32 points, or 1%, to 10,334.16, though it pulled up from a midday loss of 161 points.
The Standard & Poor’s 500 index was down 11.90 points, or 1%, to 1,128.94. The Nasdaq composite gave up 32.24 points, or 1.6%, to 2,015.55.
Stocks had closed modestly higher on Wednesday even as the Federal Reserve raised its key short-term interest rate for the first time in four years.
The market has rallied sharply since mid-May, betting that the Fed can continue to slowly raise rates to rein in inflation pressures without causing the economy to stumble.
Falling oil prices also have buoyed stocks in recent weeks.
But oil rebounded Wednesday when Saudi Arabia’s oil minister said that prices had reached a fair level, raising questions about whether the Organization of the Petroleum Exporting Countries would balk at a planned increase in production on Aug. 1.
Oil jumped again on Thursday. Near-term crude futures in New York rose $1.69 to $38.74 a barrel, a two-week high. The price peaked at $42.33 on June 1.
On Wall Street, some traders sold stocks to lighten up ahead of the weekend, analysts said. U.S. markets will be closed on Monday in observance of the Fourth of July holiday.
“I would not read too much into this weakness today because there’s a real lack of engagement overall,” said Brian Belski, strategist at brokerage Piper Jaffray.
Falling stocks outnumbered winners by 2 to 1 on Nasdaq and by about 7 to 5 on the New York Stock Exchange.
The equity market’s pullback helped bonds. The yield on the 10-year Treasury note dipped to 4.56% from 4.58% on Wednesday.
Among Thursday’s market highlights:
* Internet portal Yahoo slumped $2.10 to $34.30 after brokerage Smith Barney downgraded it to “hold” from “buy,” citing the stock’s run-up in the first half. Some analysts also have cited potential competition from Microsoft, which is developing its own Web-search technology.
Other Net-related shares also slid, including Ask Jeeves, down $3.35 to $35.68, and Findwhat.com, off $2 to $21.14.
* Intel dropped 58 cents to $27.02, its lowest close since May 17. A Morgan Stanley analyst warned clients that the chip maker’s near-term sales outlook may be disappointing, Reuters reported. The stock is off 16% this year.
Also, Costa Mesa-based chip maker Emulex dropped $2.85, or 20%, to $11.46 after saying earnings last quarter were about 18 cents a share, instead of an expected 25 cents, as sales fell below estimates. Emulex shares are down 57% year to date.
* Boeing fell $1.19 to $49.90 after Merrill Lynch said the shares had become too pricey. The stock’s price-to-earnings multiple based on estimated 2004 earnings per share is about 23.
* Cardinal Health plunged $17.19, or 25%, to $52.86 after the drug wholesaler said Wednesday that second-quarter earnings would trail estimates, and that federal regulators had expanded a probe of its accounting.
The news hit Cardinal’s rivals, including AmerisourceBergen, off $4.05 to $44.73, and McKesson, down $3.37 to $30.96.
Despite the downbeat profit news from Emulex, Cardinal Health and other firms in recent days, the number of companies warning about second-quarter profit shortfalls now totals 478, up just slightly from 472 at this time a year ago, according to earnings tracker Thomson First Call in Boston.
Overall, second-quarter earnings are expected to be robust: Operating earnings for the S&P; 500 companies are expected to rise 26% from a year earlier, Thomson First Call said.
* Industrial stocks were broadly lower after the Institute for Supply Management said its national index of manufacturing activity showed continued expansion in June, but at a slower pace than in May. Deere lost $2.28 to $67.86, Eaton dropped $1.06 to $63.68 and Alcoa was off 73 cents to $32.30.
* On the plus side, ceramic body-armor maker Ceradyne of Costa Mesa jumped $2.90 to a record $38.67 after saying it would buy a German ceramics company for $136 million to expand into more markets.
* Starbucks gained $1.13 to a record $44.62. The coffee retailer said June sales at stores open at least a year were up 10% from a year earlier, the eighth straight month of double-digit growth.
* European markets were little changed. The European Central Bank met and left its key interest rate at 2%, as expected.
