Posted at 12:50 p.m., Thursday, June 14, 2001
Stocks tumble amid earnings warnings
Associated Press
NEW YORK — The Dow Jones industrials tumbled more than 180 points today on word of a troubled merger between Honeywell and General Electric and the latest indications that a business turnaround might not occur in 2001.
Analysts said a barrage of second-quarter earnings warnings have unnerved investors, who now fear this spring's huge rally may have come too soon. A profit warning after the market closed from tech bellwether JDS Uniphase did little to suggest that sentiment would improve anytime soon.
"There's no good news on the earnings and economic fronts right now," said John Forelli, portfolio manager for the John Hancock Core Value Fund. "The hopes and dreams of a fourth-quarter recovery is being put in question as each day goes on."
The Dow Jones closed down 181.49 at 10,690.13, for a loss of 1.7 percent, recovering from a loss of 212 points, according to preliminary calculations.
Broader stock indicators also dropped sharply. The Standard & Poor's 500 index fell 21.73, or 1.8 percent, to 1,219.87, and the Nasdaq composite index fell 77.59 to 2,044.07, a decline of 3.7 percent.
"We're starting to develop a short-term oversold condition," said Gregory Nie, technical analyst at First Union Securities. "Investor optimism has taken a back seat to the news of the moment, which are second-quarter preannouncements."
Much of the Dow's steep decline was attributable to Honeywell, which dropped $5.16 to $37.10 after GE indicated its plan to acquire the company for $41 billion might not be approved by European regulators. GE rose $1.01 to $48.86, but another Dow component, United Technologies, fell $3.16 to $77.10 on speculation it was interested in buying Honeywell.
The expiration of stock futures and options tomorrow, a quarterly occurrence, also exacerbated the market's negative tone.
Meanwhile, three new economic reports did little to suggest the business climate is improving.
The Labor Department's Producer Price Index, which measures inflation pressures before they reach store shelves, crept up a seasonally adjusted 0.1 percent last month, following a modest 0.3 percent increase in April.
In another Labor Department report, the number of Americans filing new claims for state unemployment benefits fell by a seasonally adjusted 12,000 last week to 428,000, but monthly figures remain high — further evidence that employers continue to lay off employees.
Finally, a Commerce Department report showed businesses' inventories of unsold goods were flat in April, while sales fell by 0.5 percent.
That economic data only deepened investors' pessimism about profits, adding to worries that have been building in recent weeks as companies began warning about weaker-than-expected quarterly results.
Silicon Storage Technology fell $1.45 to $9.22 after it reduced its earnings forecast, while Cisco Systems tumbled $1.24 to $17.78 on analyst worries that the company would lower earnings estimates.
Financial services were also weak on profit worries. Discount brokerage Charles Schwab slipped $1.32 to $16.03 on reports of a strong dropoff in customer trading activity. American Express lost $1.75 to $39.77.
The declines are the latest in the market's pullback from its huge spring rally. Investors went on a spending spree in April and early May, chiefly on optimism that corporate profits would improve by year's end. But the recent profit warnings have eroded that confidence in recent weeks.
With other similar announcements likely, investors now seem reluctant to make big commitments to stocks. All three major indexes are now below the levels at which they started 2001.
