Nasdaq Tests 2004 Low; Oil Rises to 7-Week High
Wall Street tried to make a stand Monday after weeks of losses, and some stock market pros were left wondering whether sellers were nearly spent -- or just getting going.
The technology-dominated Nasdaq composite index at midday was headed for its lowest closing level of 2004, before a late rally lifted it to a slightly positive finish.
Other major indexes were mixed. The Dow Jones industrial average dropped 45.72 points, or 0.5%, to an eight-week low of 10,094.06, hurt by a disappointing profit outlook from conglomerate 3M. The Dow transportation and utilities indexes closed higher, however.
Analysts’ favorite adjective to describe the market in recent weeks is “boring” because the day-to-day moves, albeit mostly down, have been relatively modest.
But the losses are adding up: The Dow, which has fallen for four straight weeks, is off 3.3% this month and is down 3.4% since Jan. 1.
The Nasdaq index, which edged up less than one point Monday, has tumbled 8% since June 30 and is down 6% for the year.
“It’s a pretty ugly performance” by the market this month, said Jack Ablin, chief investment officer at Harris Trust & Savings Bank in Chicago.
Investors have been put off by another surge in oil prices, renewed fears of terrorist attacks and concerns that stock prices already reflect the profit growth that companies might be able to generate in the second half, Ablin and other analysts say.
Near-term crude oil futures in New York rose to a seven-week high Monday, up 39 cents to $41.64 a barrel -- even though the Organization of the Petroleum Exporting Countries has pledged to raise production quotas on Aug. 1 to ease perceived supply shortfalls.
For stocks, “the backdrop is one for buyers to just stay away,” said Todd Clark, a trader at Wells Fargo Securities in San Francisco. That is reflected in anemic trading volume in recent weeks.
But the relative lack of activity also indicates that many big investors are content to hold on to what they own -- evidence, some analysts say, that there still is plenty of faith in the strength and durability of the economic recovery.
“I think a lot of institutional investors have their portfolios in positions that they’re comfortable with,” said Marc Pado, U.S. market strategist for New York-based brokerage Cantor Fitzgerald.
When many big players are sidelined, however, it’s easier for short-term traders to have their way with stocks. Traders need to get a trend going -- either up or down -- to make money. So stock moves can be exaggerated on good news or bad.
3M on Monday reported second-quarter earnings of $773 million, or 97 cents a share, up 25% from $619 million, or 78 cents, a year earlier. Sales rose 9.4% to $5 billion.
The company, which makes a host of consumer and industrial products, also said it expected full-year earnings to be as much as $3.75 a share. But that just met analysts’ expectations. That left some investors underwhelmed by the company’s second-half outlook.
The shares were hammered, falling $4.79, or 5.5%, to $83.05 on the New York Stock Exchange.
As usual during earnings-reporting season, companies have been mixed in their forecasts. The technology sector was hit hard last week after computer-chip giant Intel reduced its profit-margin outlook for the rest of the year. The Nasdaq index slumped 3.3% for the week. Intel tumbled 14.5% for the period.
But other tech titans, including IBM, Dell and Apple Computer, last week mostly gave the market good news about their businesses. And on Monday, Microsoft rose 47 cents to $27.95 after brokerage Goldman Sachs said the software behemoth may beat analysts’ estimates for the second quarter when it reports results this week.
For the market overall, the control exerted by short-term traders means it may be crucial that key indexes stay above the lows they reached earlier this year, analysts say. That could cement the idea that the market is, at worst, stuck in a trading range for the near future.
The Nasdaq index reached its 2004 closing low on May 17, when it ended the day at 1,876.64.
On Monday, the index fell as low as 1,870.14 before rallying to close with a gain of 0.68 of a point at 1,883.83.
The S&P; 500 index also hit its 2004 low on May 17, when it closed at 1,084.10. On Monday, the S&P; fell as low as 1,096.58, then closed at 1,100.90, off 0.49 of a point.
If prices stabilize near current levels, many traders could assume that the next move, at least for the short run, would be a rally -- and, Clark said, they could start to make that a self-fulfilling prophecy.
“Our best bet is that the lower end of this trading range will hold and that the next trading move will be up,” said Steve Todd, publisher of the Todd Market Forecast newsletter in Mission Viejo.
But that also points up the danger, analysts say: If the market slides through the previous lows for the year, it could trigger heavier selling by traders and investors who have assumed that the latest pullback wasn’t much to worry about.
“I think a lot of people are looking at the charts now,” Clark said.
Among Monday’s highlights:
* Winners edged losers on the New York Stock Exchange, while losers dominated on Nasdaq.
* Insurance company Allstate rose $1.42 to $47.62 after posting higher second-quarter earnings and raising its profit forecast for the year.
* Tool maker Black & Decker soared $7.17 to $67.49 after its results beat forecasts and the company boosted its outlook for the year.
* Biolase Technology, a San Clemente-based maker of laser dental, cosmetic and surgical systems, sank $3.27 to $8.78 after reporting quarterly profit that was below analysts’ estimates.
* Netflix lost $2.85 to $20.17 after an analyst at Thomas Weisel Partners downgraded the online DVD renter, citing potential competition from Blockbuster. The stock slid $8.98 on Friday after the company said second-quarter profit fell from a year earlier.
Other Net-related shares also were lower, continuing their recent sell-off. Yahoo lost $1.08 to $28.11, EBay dropped $1.86 to $78.50 and Ask Jeeves was down $1.32 to $28.97.
* Bank stocks were broadly higher. Bank of America rose 91 cents to $85.38, Comerica jumped $1.43 to $57.66, and Wells Fargo was up 54 cents to $58.45.
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July swoon
Most major stock indexes are in the red since June 30 and are mixed year to date.
Pctg. change Index JULY YTD Dow utilities +2.0% +6.2% Dow transports Ð3.1 +3.3 Dow 30 Ð3.3 Ð3.4 S&P; 500 Ð3.5 Ð1.0 S&P; mid-cap Ð3.8 +1.5 S&P; small-cap Ð5.1 +4.0 Nasdaq composite Ð8.0 Ð6.0 Internet stocks* Ð11.7 Ð0.1 Chip stocks** Ð14.8 Ð18.7
* Interactive Week Index ** SOX Index
Source: Times research
