Stocks finished broadly lower as the three-punch combination of negative earnings pre-announcements, brokerage downgrades and doubts that European regulators will approve the General Electric's (GE) proposed acquisition of Honeywell International (HON).
Stocks spent the entire day in the red. Volume was heavy on the triple witching session, with about 1.2 billion shares changing hands on the New York Stock Exchange. Software and semiconductor issues were among the weaker sectors in the tech-laden Nasdaq.
The negative pre-announcements and merger news overshadowed this morning's report on the Producer Price Index (PPI), a measure of inflation at the wholesale level, which showed a rise of 0.1% in May, which was better than expected. The core rate, which excludes volatile food and energy prices, rose 0.2%.
In the day's other data releases, business inventories were unchanged in April, while U.S. initial claims fell 12,000 to the 428,000 level in the week ended June 9.
Barry Hyman, market strategist for Ehrenkrantz, King Nussbaum notes that much of the market's weakness was in the tech sector. "What can you expect when the fundamental outlook is terribly poor for this quarter?" he asks. The strategist notes that the analyst community no longer focuses on the second half of 2001 for the turnaround in market fundamentals, but now looks ahead six to 12 months. "The eventual recovery gets pushed further and further into the future and given that scenario, earnings keep going lower, valuations get higher by the day. And based upon that, you just can't have up prices."
The strategist isn't too alarmed, though. He points out that the market behaved much in the same way in the two previous confession seasons. "The market tends to sell into the pre-release announcements and then rally once the earnings came out because they started to discount the weakening future scenario."
Among today's stocks in the news, Silicon Storage (SSTI) sees breakeven to $0.03 second quarter EPS on $60 million to $68 million in revenues. The company cites excess inventory and slowdown in new orders.
The Dow Jones Industrial Average ended down 181.49 points, or 1.67%, to 10690.13, with declines in Honeywell accounting for much of the damage. The Nasdaq Composite closed lower by 77.58 points, or 3.66%, to 2044.08. The broader S&P 500 index finished with a loss of 21.73 points, or 1.75%, to 1219.87.
Treasuries closed higher in a flight-to-safety bid as stocks get hammered. The yield curve is steepening again, led mostly by strength at the front end now that 2-year yields have slipped below 4.0%, which has left the long-end lagging in its wake.
European markets closed lower. In London, the Financial Times 100 index lost 67.70 points, or 1.16%, to 5752.50. France's CAC 40 is down 56.56 points, or 1.06% to 5297.07. Germany's Dax ended down 80.67 points, or 1.32%, to 6031.27.
Asian markets ended mixed. In Tokyo, the Nikkei 225 Index gained 23.21 points, or 0.18%, to. In Hong Kong, the Hang Seng lost 274.42, or 2.03%, to close at 13248.89. By Alan Hughes in New York