Stocks finished with slight losses on Monday as prospects for an economic rebound and improved corporate results kept investors cautious.
"Investors are still sitting on the sidelines with a lot of cash," says Jeff Kleintop, chief investment officer at PNC Advisors. But he notes that the major stock indexes have not reacted wildly to the bad earnings season.
Adding to the cautious sentiment, market strategists at UBS Warburg, Credit Suisse First Boston and J.P. Morgan Chase & Co. trimmed their 2001 earnings outlook for the widely followed S&P 500 index as the economy stumbles. About 80% of companies in the index have reported earnings for the most recent quarter -- few of which have shown signs of strength.
Over the rest of the week, several key reports -- including the latest updates on consumer confidence, employment and factory orders -- will offer clues on how the economy is holding up.
Kleintop expects that income and spending data and consumer confidence gauges should both be positive. He sees July numbers on the closely watched National Association of Purchasing Managers index, if above the key 50 level, "would give a very positive tone to the manufacturing sector."
Wall Street wants to see signs that the Federal Reserve's six interest rate cuts this year are stemming the economic slowdown. The Fed will meet again on Aug. 21, at which time another rate cut is expected.
Meanwhile, corporate results and comments on profit outlooks continued to weigh on Wall Street. Software provider Adobe Systems Inc. (ADBE) said it should meet its fiscal third-quarter earnings targets but warned its revenue could fall because of slumping conditions. Also, Tyson Foods Inc. (TSN), the largest U.S. poultry producer, reported fiscal third-quarter earnings that fell sharply due to weak foreign currencies and promotional costs in a difficult market for chicken.
Analysts, by and large, remain optimistic of an economic turnaround and improved corporate results. "I think we are coming out of the second-quarter earnings reporting season. And there are some catalysts that could well lead to higher markets over the next several months," says Alan Hoffman, portfolio manager at Value Line Asset Management. He points to easier year-over-year earnings comparisons for corporations as well as the yet-to-be seen positive effects of the Federal Reserve's rate cuts. Hoffman notes it takes six to twelve months for such policy moves to affect the economy.
Among stocks in the news Monday, mega-conglomerate and Dow component General Electric Co.'s (GE) GE Capital unit made a $5.3 billion cash bid for commercial finance company Heller Financial Inc. (HF).
The Dow Jones Industrial Average shed 14.95 points, or 0.14%, to 10,401.72. The tech-heavy Nasdaq Composite fell 11.24 points, or 0.55%, to 2,017.83. The broader S&P 500 Index lost 1.30 points, or 0.11%, to 1,204.52.
U.S Treasuries finished higher as investors waited for Tuesday's Chicago purchasing managers index report, a key gauge of manufacturing, and consumer confidence figures. Along with these numbers, investors will get a stack of economic data to analyze later this week including the latest updates on factory orders and jobless claims.
European markets ended higher with help from strength in technology and telecom stocks. In London, the Financial Times 100 gained 43.60 points, or 0.81%, to 5,446.70. In France, the CAC 40 Index finished up 66.56 points, or 1.34%, to 5,033.71. Germany's DAX Index was up 37.33 points, or 0.65%, to 5,792.19.
Asian markets ended lower. In Japan, the Nikkei 225 Index lost 218.81 points, or 1.85%, to close at 11,579.27. In Japan, industrial production fell for the fourth straight month in June, bringing renewed attention to the ruling coalition's daunting task of reforming Japan's economy. Meanwhile, Japan's ruling coalition won the upper house election on Sunday.
Hong Kong's Hang Seng Index shed 95.51 points, or 0.78%, to close at 12,086.66. By Amy Tsao in New York