Posted at 11:45 a.m., Tuesday, June 26, 2001
Stocks mixed amid layoffs, profit warnings
Associated Press
NEW YORK — Blue chips fell for the third straight day today, toppling on a swath of profit warnings and layoff announcements from big companies, the biggest being Merrill Lynch.
The market also was awaiting a decision on interest rates by the Federal Reserve, which is expected to cut rates by 0.25 percentage points tomorrow. The central bank has already cut rates five times this year, a total of 2.5 percentage points, to reinvigorate the economy.
The Dow Jones industrial average ended today's session down 31.74 at 10,472.48, after falling more than 100 points Friday and yesterday.
The market's broader indicators were mixed. The Nasdaq composite index advanced 13.75 to 2,064.62, while the Standard & Poor's 500 index slipped 1.84 to 1,216.76.
While prior rate reductions have inspired rallies, analysts say investors now need signs that companies are beginning to benefit from the lower borrowing costs before they start buying again.
"The issue is not will the Federal Reserve cut interest rates. The issue is: Will there be a payoff, and if so when?" said Hugh Johnson, chief investment officer for First Albany.
The market punished the latest companies to announce profit warnings, including Merrill Lynch, down $7.54 at $58.91. The brokerage warned that second-quarter profits have suffered sluggish equity volume and will be 52 cents to 57 cents a share, missing the 82 cents a share Wall Street had expected. Merrill Lynch also said it has cut 3,300 jobs this year.
Outback Steakhouse fell 70 cents to $27.25 after announcing it will miss analysts' second-quarter earnings expectation of 52 cents a share.
Technology issues fared a little better. Microsoft rose $1.23 to $70.08, while Intel advanced 39 cents to $28.97. Both helped to curb the Dow's loss.
The market since late May has been steadily giving back from its big spring rally, which grew out of hopes that the economy would improve in the second half of 2001.
Analysts say stocks rallied too much and too soon. Although the earnings outlook didn't improve, the Nasdaq composite index soared as high as 41 percent from its lowest close of the year, which was 1,638.80 registered on April 4. And, the Dow rose much as 20.8 percent from its lowest close — 9,389.48 on March 22.
"We reached a point when the market was fully priced. And when the stock market is fully priced, everything has to go right," said Johnson, of First Albany. "(Instead), lots and lots of companies are telling us business, sales and earnings are still dismal, and they see no improvement."
Wall Street was seemingly unimpressed that consumer confidence rose for the second straight month in June. The New York-based Conference Board said its Consumer Confidence Index rose to 117.9, better than what analysts were expecting.
The market also looked past the fact that orders to U.S. factories for costly manufactured goods jumped 2.9 percent in May, easily beating the 0.4 percent rise many analysts were expecting thanks to an especially strong increase in the demand for cars and semiconductors.
Declining issues outnumbered advancers nearly 3 to 2 on the New York Stock Exchange where volume was 1.19 billion shares, compared with 1.03 billion on yesterday.
Smaller companies fared better with the Russell 2000 index rising 6.63 to 490.82. Analysts have said smaller companies stand to benefit most from lower interest rates.
