Closing Market Report

Star-Bulletin news services

Friday, June 15, 2001

Earnings warnings
sink stocks

By Amy Baldwin
Associated Press

NEW YORK >> Stock prices declined again today, suffering from an oversupply of disappointing economic data and earnings warnings from Nortel Networks, JDS Uniphase and McDonald's.

A drop in manufacturing activity in May also weighed on the market, squelching investors' hopes that business in general will improve by the end of the year. The Federal Reserve reported output at U.S. factories, utilities and mines fell 0.8 percent in May, declining for the eighth consecutive month.

"Across industry groups we continue to see warnings. And, that has completely brought into question whether the economy was in the process of bottoming, and whether we are now going to see a turnaround in the second half," said Todd Clark, co-head of trading at WR Hambrecht.

The Dow Jones industrial average ended today down 66.49 at 10,623.64 after dropping 123 points earlier. A similar spate of profit warnings and economic reports drove the Dow down 181 points yesterday.

The broader market also fell. The Nasdaq composite index slipped 15.65 to 2,028.42, and the Standard & Poor's 500 index lost 5.51 to close at 1,214.36.

Decliners outnumbered advancers 8 to 7 on the New York Stock Exchange, with 1,609 down, 1,422 up and 22 unchanged. Volume was 1.57 billion shares vs. 1.22 billion yesterday.

The NYSE composite index fell 2.02 to 621.94, the American Stock Exchange composite index slipped 0.52 to 921.36 and the Russell 2000 index, which gauges the performance of smaller companies stocks, fell 0.25 to 495.13.

The Treasury's 10-year note fell 1/8 to 98 7/32 its yield rose 2 basis points to 5.24 percent. The 30-year bond fell 15/32 to 95 23/32; its yield rose 3 basis points to 5.67 percent.

The expiration of stock futures and options today, a quarterly occurrence called triple witching, contributed to the downturn. Triple witching, even in bull markets, can lead to sharp declines and higher volume, both of which were apparent in today's session. Midway through the session, when the indexes had recovered from their lows of the day, analysts said triple witching probably was keeping the market down.

Stocks did turn positive briefly today on the notion that the economy is so weak right now that the Federal Reserve might slash interest rates by another half a percentage point at its meeting June 26-27. The Fed, which has lowered rates five times this year, had been expected to cut rates by another quarter of a point.

Aside from the prospect of a larger-than-expected rate cut, investors had no reason to buy stocks today, especially in the high-tech sector.

Tech stocks suffered from an earnings warning from Nortel that followed a warning late yesterday by JDS Uniphase.

Nortel, a network equipment maker, also announced plans to cut another 10,000 jobs on top of 20,000 announced earlier this year. Nortel fell 74 cents to $9.86, while JDS Uniphase, which makes fiber optic equipment, tumbled $1.37 to $12.44.

The likelihood of weaker earnings prompted other tech losses. Cisco Systems, which analysts fear will issue its own profit warning, declined $1.09 to $16.65.

Bad news about earnings also hurt the Dow with McDonald's falling $1.29 to $28.67 after reducing its second-quarter forecasts.

Earnings worries sent Procter & Gamble sliding $2.26 to $62.60. Although P&G reaffirmed its earnings targets, it said it will take a $1.2 billion restructuring charge.

The market was also unsettled by a decline in consumer confidence.

The University of Michigan reportedly said its consumer-sentiment index was moderately lower in the early part of June, a sign that consumers -- whose spending comprises two-thirds of the economy -- remain cautious.

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