Posted at 11:11 a.m., Monday, July 21, 2003
Stocks fall sharply on tepid earnings
By Amy Baldwin
The downward pressure came despite better-than-expected earnings and an encouraging outlook from 3M, indicating that investors on the whole are less impressed with second-quarter results than they were with those of the first quarter, which prompted huge rallies.
Analysts also attributed the declines to the market having climbed too high, too fast.
“All this is about is the market has gone very far over the last 16 weeks, specifically the Nasdaq (composite index). It has to pull back. ... I think all that has happened here is the market is just pooped out,” said Gary Kaltbaum, president of Investors’ Edge Partners, a money management firm in Orlando, Fla.
The Dow Jones industrial average closed down 91.46, or 1 percent, at 9,096.69, according to preliminary calculations. The loss wiped out much of Friday’s 137.33-point gain.
The broader market also retreated. The Nasdaq dropped 27.03, or 1.6 percent, to 1,681.47. The Standard & Poor’s 500 index declined 14.52, or 1.5 percent, to 978.80.
Today’s economic data met economists’ expectations. The Conference Board reported that its Index of Leading Economic Indicators advanced for a third month, rising by 0.1 percent in June. The index gauges what economic conditions are likely to be like in the coming three to six months.
Earnings reports today were mixed, but investors seemed to focus on those that were disappointing.
“There is this feeling that because of the great run we have already had that some of the good news has been built into the market,” said Robert Froelich, chief investment strategist for Deut-sche Asset Management in Chi-cago.
The Dow’s biggest loser was Merck, which dropped $1.95 to $59.82 after missing earnings expectations by a penny a share. Merck’s news affected other drug makers, with Lilly falling $1.04 to $66.14 and Pfizer declining 85 cents to $32.54.
Printer maker Lexmark slid $14.10, or 19.2 percent, to $59.40, having also missed earnings estimates by a penny and having cut its third-quarter outlook. Rival Canon also traded lower, declining $1.29 to $45.86.
3M climbed $5.25 to $136.43 after reporting that second-quarter profits beat analysts’ forecast by 5 cents a share and raising its estimates for the year. It was easily the Dow’s biggest gainer.
As companies report second-quarter earnings, the market hasn’t seen the large rallies that followed the release of first-quarter results. Some analysts say that’s because there haven’t been enough companies raising their earnings estimates for the third and fourth quarter, even though most of them have been meeting or beating second-quarter expectations.
Other analysts say its because the market has simply become overpriced. At the end of Fridays session, the Nasdaq was up 34.4 percent from the March 11 lows, while the Dow was up 22.1 percent and the S&P was up 24.1 percent.
Declining issues outnumbered advancers slightly more than 5 to 2 on the New York Stock Exchange. Volume was light.
The Russell 2000 index, which tracks smaller company stocks, fell 7.59, or 1.6 percent, to 457.17.
Overseas, France’s CAC-40 fell 1.5 percent, Britain’s FTSE 100 declined 0.7 percent and Germany’s DAX index shed 2.4 percent. Japan’s markets were closed for Marine Day, a national holiday.