Stocks finished near session lows Thursday after a raft of bad news from telecom equipment concerns including Ciena Corp. (CIEN) and Lucent (LU).
Worse-than-expected retail sales data also weighed on markets. November retail sales fell 3.7%, the biggest drop since 1992, which is when the Commerce Department began to formally track such data. Economists at S&P's MMS expected sales to be lower by 0.3%. The report showed that car sales were off significantly, falling 11.9%, while non-auto sales were off just 0.5%.
The latest bad news from Corporate America raises doubts about the timing of a U.S. economic recovery. Telecommunications companies were among those bearing gloomy tidings on Thursday. Optical networking equipment maker Ciena posted a quarterly net loss of $1.8 billion, mainly due to a charge to write down assets. The company warned of future losses due to the uncertain telecommunications market.
Lucent, meanwhile, warned that its fiscal first-quarter loss would be larger than analysts' expectations.
"Telecom warnings were really weighing on the market today," says Peter Cardillo, chief strategist at Global Partners Securities Inc. He says that though retail sales were dismal, the data were not entirely unexpected since auto sales were so strong in October. "The market seems to have run into some technical problems at the upper end of the trading range," he adds.
Investors will have a flood of economic reports to digest Friday. Among them: November CPI, a gauge of inflation at the consumer level, business inventories for October, November industrial production and bank credit for November.
S&P MMS's economists expect November overall CPI to drop 0.3% and the core to rise 0.2%. The report is expected to show ongoing weakness in energy. Overall, the data will support the view that inflation pressures are clearly moderating in the post-terrorist-attack environment, MMS says.
Industrial production should drop another 0.3% in November, which would leave capacity utilization at a new 18-year low of 74.3%, down from 74.6%, according to MMS. Overall, the data are expected to support the view that despite the recent surprising strength in demand (especially in autos), production still remains throttled as businesses continue to cut down current levels of inventories.
Business inventories should fall 0.6% in October following a 0.3% gain in September, marking the ninth straight month that inventories have declined, S&P's MMS says. Inventories for all should reveal further declines in November and December, thus leaving GDP falling by 1% in the fourth quarter despite a 3% growth clip for real consumption.
In other market-moving news Thursday, telecommunications services provider Qwest Communications International (Q) cut its growth outlook through 2002, blaming softer demand for voice and data services. It will also lay off 7,000 people, or more than 11%, of its workforce.
Aetna Inc. (AET) plans to cut about a sixth of its staff and take a $125-million fourth-quarter after-tax charge. The largest U.S. health insurer is struggling to manage rising medical costs and exit its unprofitable membership in government sponsored plans.
Shares of Amgen (AMGN) slipped while those of Immunex (IMNX) jumped late in the day, as rumors of a merger between the two biotech concerns circulated.
On Thursday, the Dow Jones industrial average ended down 128.36 points, or 1.30%, to 9,766.45. The tech-heavy Nasdaq composite index lost 64.86 points, or 3.22%, to 1,946.52. The broader S&P 500 index pulled back by 17.69 points, or 1.56%, to 1,119.38.
U.S. Treasuries ended lower on speculation that the Federal Reserve, which cut rates for an eleventh time this year earlier in the week, is nearing the end of its easing rope. Housing agency Freddie Mac priced $5 billion in 2-year notes as well, so supply may be a factor when stacked against the bond buyback just completed.
Also, better-than-expected initial jobless claims hurt Treasury prices. Initial jobless claims, fell by 86,000 to 394,000 for the week ended Dec. 8 compared to a revised 480,000 in the previous week. The report also showed that the number of workers remaining on benefits for the week ending Dec. 1, rose 36,000 to 3.7 million.
In other economic news, U.S. wholesale prices fell in November, as measured by the producer price index. The report shows that inflation remains low as a declining global economy kept imported energy prices down.
European markets ended lower. In London, the Financial Times-Stock Exchange 100 index ended off 45.10 points, or 0.88%, to 5,074.90, on news that December manufacturing sentiment hit a 3-year low, while November retail sales rose 1.3%, the fastest pace in 13 years. In Germany, the DAX Index dropped 96.51 points, or 1.91%, to 4,966.05. German retail sales suffered their biggest decline in 2 years. A European Central Bank official, meanwhile, sees the German economy recovering slowly next year. In France, the CAC 40 finished down 100.02 points, or 2.22%, to 4,410.66.
In Asia, the markets pulled back, following Wednesday's sharp gains. Japan's Nikkei fell 368.07 points, or 3.41%, to 10,433.45. The index suffered its worst one-day decline since Sept. 17. Results of the December Tankan survey of Japanese business conditions, while better than expected, showed further deterioration in sentiment. In Hong Kong, the market shed 317.52 points, or 2.68%, to 11,529.54.