Tech wreck derails
Dow, S&P, NasdaqStrong earnings can't stem
Star-Bulletin news services
the onslaught of profit-takersNEW YORK -- Stocks dropped sharply today as investors who pumped up their portfolios on the promise of strong corporate earnings began selling to capture profits. The Dow Jones industrial average fell 191.55, or 1.7 percent, to close at 10,996.13.
Lucent Technologies Inc., Microsoft Corp., IBM Corp. and other technology stocks fell amid concern that sales and earnings won't increase enough in the second half to justify this year's rally in their shares.
The Standard & Poor's 500 fell 30.55, or 2.17 percent, to 1,377.10.
The Nasdaq composite index, dominated by technology issues, dropped 98.11 points, or nearly 3.5 percent, to 2,732.25. It was Nasdaq's steepest point loss since April 19, when the index dropped 138.43 points.
Analysts said the index, which is still up 24.6 percent in 1999 despite today's drop, was poised for a selloff. By comparison, the Dow is up 19.76 percent and the S&P 500 is 12 percent so for this year.
In today's New York Stock Exchange action, decliners outpaced advancers by an 11-to-5 margin, with 2,039 down, 869 up and 596 unchanged. NYSE volume totaled 756.07 million shares vs. 645.26 million yesterday. The NYSE composite index fell 11.30 to 647.27; the American Stock Exchange composite index dropped 11.76 to 805.90; and the Russell 2000 index of smaller companies fell 7.82 to 453.55.
Bonds rose as tumbling stock prices lured investors to the haven of U.S. Treasury securities. The 30-year bond rose 5/32, or $1.56 per $1,000 face amount, to a price of 911/8. It's yield dropped 1 basis point to 5.89 percent. Two-year notes gained the most among Treasuries, sending yields down 4 basis points to 5.40 percent.
As the second-quarter earnings reporting season continues, companies are turning in impressive profit figures. Stocks that comprise the S&P 500 are on track for their strongest profit growth since the third quarter of 1997, according to First Call Corp.
Today, a trio of Dow components -- Johnson & Johnson, General Motors Corp. and United Technologies Corp. -- reported earnings that beat Wall Street estimates.
But with major market indexes close to record levels, few big companies have managed any significant bounce from their strong earnings. Johnson & Johnson and United Technologies rose modestly, while GM slipped.
"We've had a sparkling rally," said Joseph V. Battipaglia, chief investment strategist at Gruntal & Co. in New York. "While there's been no disappointments, there has been some room for short-term selling."
Wall Street's high expectations for corporate profits have created a punishing climate for any companies that offer even a hint of weakness. Microsoft fell sharply today, after announcing late yesterday it expects revenue growth to slow in fiscal year 2000, which began July 1. (See story, page D-6.)
Microsoft beat earnings estimates by 4 cents a share in its fiscal fourth quarter. But the company's chief financial officer warned its stellar rate of growth will be difficult to sustain as personal computer sales slow, Year 2000 computer problems linger and Microsoft makes hefty investments in new arenas.
Analysts discounted the cautious revenue forecast, saying the selloff was due almost entirely to profit-taking.
"Overall, we believe that business conditions remain extremely solid for Microsoft," said Neil J. Herman, an analyst with Salomon Smith Barney.
IBM had a similar fate, plunging and contributing most heavily to the Dow's losses. Big Blue said after the market closed yesterday that its second-quarter profits jumped 65 percent, beating analysts' expectations by 3 cents per share. But analysts said that because shares of IBM have risen more than 40 percent so far this year, investors are reluctant to build up their positions in the stock.
"We've anticipated all of these good earnings already," said Robert Finch, a money manager with Aeltus Investment Management Inc., which oversees $60 billion in Hartford, Conn. "Now we need to have a megasurprise to have a good jump" in the market.