Posted on: Thursday, December 20, 2001
Revenue warnings help sink tech stocks as markets stumble
By Lisa Singhania
Associated Press
NEW YORK — An earnings and revenue warning from Juniper Networks helped send technology stocks sharply lower today, as Wall Street worried that the recent rally might have been premature.
The demise of a much-anticipated economic stimulus package in Congress intensified the market's skittishness.
The Dow Jones industrial average closed down 85.31, or 0.9 percent, at 9,985.18, according to preliminary calculations.
Broader indicators also tumbled. The technology-focused Nasdaq fell 64.37, or 3.2 percent, to 1,918.52, while the Standard & Poor's 500 index dropped 9.63, or 0.8 percent, to 1,139.93.
"We'd already seen a few warnings in the semiconductor industry and now it's the networking sectors," said Barry Hyman, chief investment strategist at Ehrenkrantz King Nussbaum. "All of this outlines the fact that earnings picture is still unclear for the next quarter or so."
Congress' failure to pass a significant unemployment and business aid package raised further doubts about Wall Street's hopes of a mid-2002 recovery. Even with 11 interest rate cuts this year, many market watchers and economists were counting on this additional government help to restart the ailing economy.
In trading today, networking equipment maker Juniper fell $4.05 to $18.88 after reducing its fourth quarter outlook because of increasing caution among its customers.
The selling spread to other technology issues, which were already under pressure from profit-taking and fears a turnaround would take longer than expected. Rival Cisco Systems dropped $1.06 to $18.29, while bellwether Intel slipped $1.07 to $31.98.
Retail stocks fared better, helped by a Merrill Lynch research note suggesting the worst might soon be over for the beleaguered industry. J.C. Penney rose 27 cents to $25.00 after the brokerage upgraded the department store to "strong buy" from "buy."
Investors had a mixed reaction to news that Comcast is taking over AT&T's broadband business in a $45 billion deal that creates a company with 22.3 million cable subscribers. AT&T rose $1.05 to $17.85, while Comcast dropped $2.44 to $35.65. AOL Time Warner, which had bid unsuccessfully for AT&T Broadband, lost 25 cents to $32.78. Since rebounding from its post-Sept. 11 lows, the market has been trapped in a trading range. For the last month, the Dow has hovered around 10,000, while the Nasdaq has fluctuated near the 2,000 level. Analysts say investors are hesitant to make big commitments until there are firmer signs that corporate profits are stabilizing and the business is improving.
Economic data overall has been mixed, although there was some good news today. The Labor Department reported that fewer Americans filed new claims for unemployment insurance, the third weekly decline in a row, raising the hope that the layoffs hitting workers after the terror attacks is abating.
Many analysts are predicting a stronger market in 2002, but they caution that any progress will come gradually and choppily, at best.
"A lot of people are nervous about 2002, whether it's going to be strong, particularly in terms of earnings progress," said Larry Rice, chief investment officer at Josephthal & Co, who is worried that many stocks are trading at prices that far outstrip their actual value. "I don't think we're going to test the market's lows again, but rather just have a correction of greater magnitude than we've seen."
Trading volume is expected to drop during the holidays, but the market could be volatile tomorrow because of what's called a "triple witching" session — the quarterly expiration of index futures and index and stock options.
