Stocks fall on
earnings warnings

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By Amy Baldwin
Associated Press

NEW YORK >> A drop in industrial production and a profit warning from McDonald's today took a jab at investors' already shaky confidence in the economy, prompting them to again sell off stocks. The Dow Jones industrials fell more than 170 points.

"We saw some credible evidence that the economy is still sluggish in the production number, and we saw credible evidence that corporate earnings are going to remain weak with the McDonald's warning," said Arthur Hogan, chief market analyst at Jefferies & Co.

The market's biggest obstacles, which are earnings and the economy, "are still with us," Hogan said.

With its biggest drag being McDonald's, the Dow closed down 172.63, or 2.1 percent, at 8,207.55. Declining issues outnumbered advancers 5 to 2 on the New York Stock Exchange. Volume was moderate.

The market's broader gauges also fell. The Nasdaq composite index declined 15.94, or 1.3 percent, to 1,259.94. The Standard & Poor's 500 index fell 17.58, or 2 percent, to 873.52. The Russell 2000 index, the barometer of smaller company stocks, fell 6.80, or 1.8 percent, to 379.33.

The price of the Treasury's 10-year note gained 7/16 point today, while its yield fell to 3.86 percent from 3.92 percent late yesterday. Two-year Treasury notes were up 3/32 point and yielded 2.04 percent, down from 2.09 percent yesterday.

Investors have been bracing for third-quarter earnings warnings, which companies will be issuing for the remainder of this month, and have been equally discouraged by reports indicating that the economy remains soft.

Wall Street was pressured today by discouraging economic data from the Federal Reserve, which said industrial production fell by 0.3 percent in August. Analysts were forecasting an increase of 0.1 percent to 0.2 percent.

"This economic recovery keeps getting pushed out by these earnings warnings," said Barry Berman, head trader for Robert W. Baird & Co. "And, the letter (of agreement) from Iraq is still in the early stages. ... The longer-range concern is whether or not this is just fluff and that the war talk is just being postponed for a while."

Analysts said investors were uninspired by Iraq's agreeing to admit U.N. weapons inspectors without conditions, because of skepticism about the country's willingness to allow a real search for weapons of mass destruction.

"My feeling is the news on the Iraq thing was a little positive, but I don't think the Iraq scenario as a whole is positive until there is an end to it," said Stephen Carl, principal and head of equity trading at The Williams Capital Group.

Companies that warned of weaker profits were among the losers. McDonald's slid $2.78 to $18.91, to a low not seen since October 1995, and Kroger dropped $2.25 to $15.76. Both companies cut their yearly growth estimates, and Kroger missed fiscal second-quarter earnings expectations.

McDonald's Corp. said weaker-than-expected sales in the United States and Europe this summer have prompted it to reduce its estimate of 2002 profits, sending its stock plummeting to a new seven-year low.

The hamburger giant also said it will slow the pace of new restaurant openings abroad in connection with a U.S. initiative that entails adding lower-priced items, renovating older restaurants and focusing on improving service.

The announcement underscored the Oak Brook, Ill.-based company's continuing struggle with a sales slump at its 13,200 restaurants in the United States, where the proliferation of fast-food and casual-dining competition in recent years has eroded its sales and market share.

Software maker Oracle fell 25 cents to $9.03 ahead of its earnings report due later in the day.

Oil stocks also contributed to the market's slide, falling on prospects of a war with Iraq. Exxon Mobil declined $1.33 to $33.07.

But there were some winners, including electronics retailer Best Buy, which rose $1.37 to $25.46 on second-quarter earnings that were a penny a share higher than analysts were expecting.

Today's session marked the one-year anniversary of the resumption of trading following the terror attacks. Trading was preceded by a moment of silence and the singing of "God Bless America."

Overseas, Japan's Nikkei stock average finished up 3.3 percent. But in Europe, France's CAC-40 fell 0.9 percent, Britain's FTSE 100 declined 0.5 percent and Germany's DAX index lost 0.9 percent.