Posted at 12:30 p.m., Friday, July 6, 2001
Pessimism spreads across Wall Street
Advertiser news services
NEW YORK — Wall Street's pessimism about earnings deepened today, sending the Dow Jones industrials down more than 200 points after bad news from technology bellwethers EMC and Advanced Micro Devices.
The latest earnings warnings, combined with news of an increase in the June unemployment rate, exacerbated fears that second-quarter results will be even worse than expected — and that a business turnaround before 2002 will be impossible.
"A lot of people had bought the idea that the worst was behind us. Obviously that's not the case," said Richard Dickson, a technical analyst at Hilliard Lyons. "The earnings warnings, particularly in tech, are continuing and that's spreading to the rest of the market."
The Dow fell 227.18 to 10,252.68, according to preliminary calculations, extending its drop of the previous two sessions. The blue chips have now suffered seven-straight weekly declines.
Broader stock indicators also tumbled. The Nasdaq composite index was off 75.95 at 2,004.16 after three-consecutive daily declines, while the Standard & Poor's 500 index lost 28.65 to 1,190.59, its third-straight drop.
Trading volume was light because of the Independence Day holiday on Wednesday. Still, analysts said the drop reflected a general uneasiness about where the market is headed.
"The question is still when is the economy going to turn," said Todd Clark, co-head of trading at WR Hambrecht. "With the EMC and Advanced Micro Device misses being so big and really blindsiding the Street, it's caused people to say, 'I'm pulling bids and I'm not going to be buying right now."'
EMC tumbled $8.43 to $21.60, a 28 percent loss, after the data storage company said a slowdown in tech spending will put its second-quarter earnings far below Wall Street expectations.
A similar earnings prediction from Advanced Micro Devices sent the chip maker down 27 percent, falling $7.84 to $20.80.
Disappointing results "are likely to keep a cap on stock performance for the next several quarters," said Tom Van Leuven, a strategist at J.P. Morgan Securities Inc. "Expectations are still too high for the market in general and tech companies especially."
The degree of the reductions made investors think twice about other technology issues, including IBM, which fell $5.60 to $106.50, and Intel, which dropped $1.41 to $28.43.
For the week, the Nasdaq fell 7.2 percent as investors questioned whether the Federal Reserve's six interest-rate cuts this year will spark a recovery in earnings this year. The S&P 500 lost 2.8 percent for the week while the Dow dropped 2.4 percent.
The Nasdaq has fallen 13 percent since late May as companies said profits this quarter would be lower than even the worst-case forecasts of analysts.
Non-technology stocks weren't immune from investors' frustration. America West Holdings, the parent carrier for America West Airlines, fell 34 cents to $9.32 on news it expects the carrier to post a second-quarter net loss because of the weak U.S. economy and high fuel prices.
But retailer Federated managed a small gain, rising 23 cents to $38.24, despite a profit warning blamed on weak sales.
The reduced forecasts are the latest in a string of warnings that began weeks ago in advance of second-quarter reports due out this month.
Although Wall Street was expecting weak results, the extent of the warnings, combined with most companies' inability to predict when those figures will improve, has fouled investors' mood. The fact that warnings have come from an array of sectors, rather than just technology as expected, has also upset the market.
As a result, instead of buying stocks on expectations of a future turnaround, investors have been cautiously buying during the market's dips and selling as soon as stocks showed any strength. The losses have also eroded the market's huge rally this spring, although the major indexes remain well above their lows for the year.
A new Labor Department report gave investors little reason to change their strategy. The figures today showed the nation's unemployment rate rose 0.1 percentage point to 4.5 percent in June from May as manufacturers continued to suffer heavy job losses and demand for workers in service industries fell to the lowest level in 10 months.
The 4.5 percent level matched the unemployment rate in April with both months representing the highest level the jobless rate has reached in the yearlong economic slowdown.
Declining issues led advancers 2 to 1 on the New York Stock Exchange. Volume was 1.04 billion shares, compared with 928.74 million at the same point yesterday.
The Russell 2000 index fell 9.47 to 483.26.
Overseas markets were also weak. Japan's Nikkei stock average fell 2.4 percent. In Europe, Germany's DAX index dropped 2.3 percent, Britain's FT-SE 100 lost 1.3 percent and France's CAC-40 slipped 2.4 percent.
