Stocks Decline After Remarks by Greenspan
A spate of profit warnings and a surprisingly restrained economic assessment by Federal Reserve Chairman Alan Greenspan helped send stocks modestly lower Wednesday.
The news drove some investors into Treasury bonds, pushing yields down.
Stocks opened the session with a rally, then drifted into negative territory as investors digested earnings warnings from companies including Avon Products, Dean Foods and McKesson.
Greenspan, testifying before the House Budget Committee, said the economic expansion has “regained some traction” in recent months, but some analysts said his comments overall sounded relatively cautious.
At one point he described the economy as doing “reasonably well,” and said the outlook would be better were it not for still-high oil prices.
“Some people are interpreting that Greenspan may not be as confident of the recovery as he was when he last spoke,” Mark MacQueen, who is part of a team that manages $3.5 billion of bonds at Sage Advisory Services in Austin, Texas, told Bloomberg News.
That undercut stock prices, although the market’s losses were muted.
The Dow Jones industrial average dipped 29.43 points, or 0.3%, to 10,313.36, and the Standard & Poor’s 500 index eased 5.03 points, or 0.5%, to 1,116.27.
The Nasdaq composite lost 7.92 points, or 0.4%, to 1,850.64.
Falling stocks outnumbered winners by about 7 to 5 on the New York Stock Exchange and by 5 to 3 on Nasdaq.
Recent data have indicated that the economy continued to grow in August, but retail sales weakened, raising questions about consumers’ ability to continue spending.
For investors, the main focus soon will shift to third-quarter earnings, and whether those results can justify current share prices, analysts say.
“Clearly, everyone wants to know what the catalyst is going to be to send this market higher,” said Brian Belski, a strategist at brokerage Piper Jaffray. “We’ve been increasingly conservative on earnings growth estimates, and those numbers will have to start going up if we’re going to rally.”
For a number of companies Wednesday, the direction of growth estimates was down rather than up.
Avon Products said U.S. sales have been soft this quarter. Although the company said strong foreign sales would help it meet its previous earnings forecast of 34 cents a share for the period, the stock slid $2.80 to $42.86.
Dean Foods, a major producer of dairy products, tumbled $6.73 to $30.40 after the company slashed its 2004 profit forecast because of a surge in wholesale milk prices and higher energy costs. Dean said it would earn between $2 and $2.05 a share this year, down from a previous forecast of as much as $2.26.
McKesson, a drug wholesaler, tumbled $4.85 to $26.98 after warning that earnings this quarter would be down by more than half from a year earlier because of fewer drug price increases that the company could pass on to consumers.
Among Wednesday’s other market highlights:
* Treasury bond yields dropped on Greenspan’s comments about the economy. Most analysts believe the Fed will raise its key short-term interest rate at least two more times this year, but some say the central bank may pause in the first half of 2005 unless the economy accelerates.
The yield on the 10-year T-note dropped to 4.16% from 4.24% on Tuesday.
Strong demand for new five-year T-notes the government sold Wednesday also helped sentiment in the bond market. The yield on the notes was 3.44%.
* Crude oil futures in New York fell for a third straight session, off 54 cents to $42.77 a barrel. The price peaked above $49 in mid-August.
* In the Dow index, Coca-Cola fell $2.20 to $43.45. Its chief bottler, Coca-Cola Enterprises, issued warnings over its third-quarter earnings and reduced its full-year outlook because of lower demand for the company’s soft drinks. Coca-Cola Enterprises lost $1.11 to $19.48.
Rival PepsiCo was down $1.12 to $49.70.
* On the upside, retailer RadioShack added 42 cents to $29.57 after saying that per-share profit could rise as much as 21% next year as the company boosts sales by remodeling more stores and expanding in Mexico.
Internet advertising developer ValueClick jumped $1.02 to $8.36. The Westlake Village-based company said 2005 sales could rise as much as 40% from this year.
