With Wall Street expecting the worst quarterly earnings season in more than two years, the stock market seems to be girding for a long cold winter.
Monday was no different with investors again dumping equities amid a blizzard of new profit warnings and negative analyst comments about the slowing economy's impact on corporate bottom lines. But a spurt of late-session bargain hunting pulled all three major indexes well off their worst levels of the day.
The fourth quarter earnings reporting season kicks off unofficially next week. Earnings among companies that make up the Standard & Poor's 500 index are expected to grow at an anemic 4.1% rate, according to First Call/Thomson Financial. In comparison, profits among the same companies surged 21.3% during the same period last year.
The market on Monday was able to trim its losses late in the session as some Old Economy names soaked up some of the money leaking out of the technology sector. And it's been the techs that have been bruised the most by worries about slackening profit, Larry Lawler, head of stock trading at Dreyfus Corp., told Standard & Poor's AdvisorInsight.
"If the economy slows down and doesn't pick up, who's going to go out and buy new computers?" Lawler said.
That question appeared to be much on the minds of investors in Dell Computer Corp (DELL). The PC giant was off for most of the session after Bear Stearns trimmed its 2001 estimates, though it managed to close up 1/8 at 19-1/8.
Another heavily traded stock was data networking company Cisco Systems Inc. (CSCO), which shed 5/64 to 36-35/64. The financial newsweekly Barron's said investors have embraced the notion that Cisco's prospects may be dimming with any number of the company's customers seriously ailing.
Also in trouble was application software maker BEA Systems (BEAS), which fell 7-3/16 to 46-7/16 after Prudential Securities cut its price target, citing concerns about the stock's price given a softening in software spending.
"It's just a continuation of last year," said Larry Rice, chief investment officer at Josephthal Lyon & Ross. "It's just one preannouncement after another or just one downgrade after another."
Tech stocks were also dragging on the Dow Jones industrial average. But bigger losses were stanched by Alcoa Inc. (AA), the world's largest aluminum producer, which was up 3/8 at 33-1/2.
Alcoa, a component of the Dow Jones industrial average, gained after reporting a higher-than-expected 17 percent rise in earnings. In general, money flowed to Old Economy companies such as cigarette maker Philip Morris (MO), softdrink giant Coca-Cola Co. (KO) and consumer products behemoth Procter & Gamble Co. (PG).
Among some of the profit warnings, software company New Era of Networks Inc. (NEON) fell 2-13/32 to 3-3/32 after saying it sees posting a loss and will book a restructuring charge for the quarter.
Stocks have been wobbly despite a surprise half percentage point cut in interest rates last week by the Federal Reserve.
Dreyfus's Lawler said by lowering rates, Fed Chairman Alan Greenspan is saying there is a problem with the economy.
"You don't correct the economy because you decide to lower interest rates," Lawler said. "You might help it, but you're not going to correct it."
But Wayne Angell of Bear Stearns said his firm believes the Central Bank will cut interest rates by 25 basis points when it hold its next meeting Jan. 30-31. There is scant economic data due out this week until Friday, when the market will get a report on inflation at the wholesale level.
The tech-heavy Nasdaq composite index closed down 11.32 points, or 0.47%, at 2,396.33. The Dow, meanwhile, was off 40.66 points, or 0.38%, to 10,621.35. The Standard & Poor's 500 index, a broad stocks gauge, eased 2.77 points, or 0.21%, at 1,295.58.
U.S. Treasuries finished lower as stocks trimmed their losses by the end of the session. There is little economic data to guide the fixed income market before Friday's release of the Producer Price Index (PPI), a key gauge of inflation at the wholesale level.
Federal Reserve Bank of Atlanta President Jack Guynn told newswires that he expects a more moderate pace of growth of about 3% in 2001 and says the outlook is still "very good," although comparisons to last year will be disappointing. But he said the Fed's rate cut should help the economy "stay on its feet." Guynn is not a member of the Fed's rate setting committee.
Stocks in the News
Semiconductor maker Fairchild Semiconductor (FCS) sees first quarter sales about 5%-8% below expected fourth quarter range of $468 million to $470 million. The company continues to sees short term inventory correction but revenues are expected to rebound slowly in the second quarter.
Spanish language radio station operator Hispanic Broadcasting (HSP) sees lower than expected fourth quarter revenues of about $60 million, noting increase in promotion and marketing expense and operating losses from Internet division.
AMR Corp. (AMR), parent of American Airlines, is close to a deal to acquire TWA, and has agreed to purchase significant assets from US AIRWAYS: WSJ.
Media company The New York Times (NYT) is to cut 17% of its workforce at its Internet unit.
European markets closed mixed. The London Financial Times-Stock Exchange 100 index was off 48.50 points, or 0.78%, at 6,149.60 amid uncertainty about Bank of England rate policy and U.S. markets. In Germany, the DAX Index was up 9.86 points, or 0.15%, to 6,392.17 as German industrial production rose 0.4% in November and a survey showed EuroZone business climate improved. Meanwhile, France's CAC 40 was off 25.22 points, or 0.44%, at 5,732.80.
In Asia, Japan's Nikkei 225 Index was closed for Coming-of-Age day. Hong Kong's Hang Seng index was down 11.08 points, or 0.07%, to 15,436.53. By Eric Wahlgren in New York