Market Meltdown from Bloomberg one day later after the melt-up for the MITA archives:
U.S. Stocks Fall; Apple, Bank of America Warnings Wipe Out Rate Optimism
By Robert Dieterich
New York, Dec. 6 (Bloomberg) -- U.S. stocks fell as fresh evidence of slowing corporate profit growth erased optimism left from yesterday's rally.
Computer-related shares led the decline after Apple Computer Inc. said it will have an unexpected quarterly loss. Intel Corp., Compaq Computer Corp., Dell Computer Corp., International Business Machines Corp. and Hewlett-Packard Co. dropped.
Bank of America Corp. sent financial shares lower after the largest U.S. bank said profits for the fourth quarter and next year will disappoint investors.
``When we saw (the news from) Apple, that brought the reality back into focus'' after the Nasdaq Composite Index's record gain yesterday, said George Pierides, who helps manage $2 billion at Fox Asset Management Inc. in Little Silver, New Jersey. The slowdown in the economy ``didn't change because of Greenspan's kind words.''
The Nasdaq dropped 93.30, or 3.2 percent, to 2796.50, erasing a 0.9 percent gain. That followed a surge of almost 10.5 percent yesterday when Federal Reserve Chairman Alan Greenspan suggested the central bank is prepared to cut interest rates if the economy slows further.
The Dow Jones Industrial Average lost 234.34, or 2.2 percent, to 10,664.38. The Standard & Poor's 500 Index slipped 25.08, or 1.8 percent, to 1351.46.
More than four stocks fell for every three that rose on the New York Stock Exchange. Some 1.35 billion shares traded on the Big Board, the eighth-most on record and 23 percent more than the three-month daily average.
About 2.3 billion shares changed hands on the Nasdaq Stock Market, making it the 10th-busiest day.
Rate Cuts `Critical'
The performance of U.S. stocks in 2001 is ``critically dependent on aggressive'' interest-rate cutting, said David Bowers, chief global investment strategist with Merrill Lynch & Co.
While Greenspan's comments lifted optimism about the possibility of a decrease early next year, a ``token easing'' would disappoint investors, Bowers said at a briefing on the firm's outlook for 2001.
Merrill Lynch's U.S. strategist, Christine Callies, expects the S&P 500 to reach 1720 by the end of next year if the Fed cuts rates enough to offset the disappointment investors will get from slower earnings growth.
Apple fell $2.69, or 16 percent, to $14.31. The maker of iMac personal computers said it expects sales of $1 billion during the quarter ending Dec. 30 and a loss before investment gains of $225 million to $250 million.
That's a $600 million sales shortfall from estimates given in October, when the company said it would post a ``slight profit'' during the period.
Apple joins Gateway Inc., Micron Electronics Inc. and other PC-related companies that have cut sales targets. The price of memory chips, another indicator of PC demand, has fallen by half in the past three months.
PC Stocks Fall
Among other personal-computer makers, Compaq fell $4.30 to $20.10, Dell lost $2.25 to $18, IBM declined $6.63 to $96.75 and Hewlett-Packard dropped $3 to $32.
Intel, the No. 1 maker of semiconductors, fell $4.25, or 12 percent, to $31.75 after Salomon Smith Barney Inc. analyst Jonathan Joseph said its fourth quarter is ``shaping up to be its worst quarter in over a decade.'' Joseph last week cut sales and profit forecasts for Intel.
``I'm nervous about PC stocks,'' said Tom Walker, head of the North America team at Martin Currie Investment Management in Edinburgh, which manages about $10 billion. `` It's hard to see where the next big area of growth will be for these companies.''
Credit Suisse First Boston analyst Kevin McCarthy cut ratings on some top computer makers after the Apple report. McCarthy lowered Gateway and Apple to ``hold'' from ``buy'' and dropped Compaq to ``hold'' from ``strong buy,'' citing shrinking demand for their products.
Banks Fall
Bank of America declined $3.19 to $38. The largest U.S. bank said fourth-quarter profit will drop more than expected as bad loans rise and its capital markets business slows. The bank also said it expects higher losses from bad loans next year.
Chase Manhattan Corp. lost $1.25 to $40.06 and First Union Corp. fell $1.50 to $24. Both were up before Bank of America's announcement, on optimism the Fed's next move would be to lower interest rates.
``We're not at crisis levels, but we're going from too-good- to-be true levels to normal levels'' of problem loans, said James Ellman, who oversees more than $700 million as a portfolio manager at Merrill Lynch Investment Management. ``It's happening more quickly than anyone expected.''
Juniper Networks Falls
Juniper Networks Inc. fell $15.70 to $140.30 after Ericsson AB said it sold about 10.4 million Juniper shares, in part to help fund development of its mobile-phone infrastructure products. Juniper said it would buy back 1 million of the shares.
Circuit City Group plunged $3.13, or 25 percent, to $9.63, giving the stock a 79 percent loss in 2000. The electronics stores said its fiscal third-quarter loss will be about four times wider than analysts' estimates because of sluggish sales, price cuts and remodeling costs.
Yahoo! Inc. fell $6.38 to $37.50 after Merrill Lynch & Co. analyst Henry Blodget cut his revenue estimates for the first half of next year, saying the first quarter ``will be the toughest'' for Internet advertising. He raised revenue forecasts for the second half of the year and left full-year revenue and profit numbers unchanged.
Yahoo rose 16 percent yesterday. The shares have fallen 83 percent this year.
Dow Jones & Co. lost $5.88 to $53.44 after the publisher of the Wall Street Journal said fourth-quarter profit will be lower than forecast because of ``softening demand for advertising.'' Knight Ridder Inc. fell 81 cents to $53.06. Knight Ridder, the second-largest U.S. newspaper publisher, said it will cut as much as 2 percent of its workforce next year to lower costs.
Bloomberg LP, parent of Bloomberg News, competes with Dow Jones in providing financial news and information.
Endwave Drops
Endwave Corp. sank $7.50, or 69 percent, to $3.38 after the maker of wireless data-networking devices lowered revenue estimates and said it expects to post a wider-than-expected fourth- quarter net loss.
Analysts at Deutsche Banc Alex. Brown and J.P. Morgan & Co. cut ratings on the company. Deutsche Banc's Brian Modoff said Endwave cited slower-than-anticipated demand from Nortel Networks Corp., one of its primary customers.
Visteon Corp. fell $3.38 to $11.06. The auto-parts supplier spun off by Ford Motor Co. in June said fourth-quarter profit will fall far short of forecasts and it will slash capital spending and overtime because of production cuts at its former parent.
Northrop Grumman Corp. fell $2 to $83 after the fifth-largest U.S. defense contractor said 2001 earnings will be as much as $1 a share below some analysts' expectations.
Home Depot Rises
Home Depot Inc. rose $1.44 to $45.06. The company surprised shareholders by naming General Electric Co.'s Robert Nardelli as president and chief executive. Nardelli, who was passed over for the top job at GE, is the first outsider to run the home- improvement chain and has little retail experience.
Advanced Fibre Communications Inc. climbed $4.27 to $24.27. The maker of equipment that extends the reach of phone networks said fourth-quarter profit will ``meet or exceed'' estimates.
Celestica Inc. added $4.30 to $96.301 after Motorola Inc. hired the company to build more than $1 billion of communications equipment over three years. Celestica will buy two Motorola plants. Motorola fell $1.19 to $17.81, extending this year's drop in the stock to 64 percent.
S&P 500 Shuffle
QLogic Corp., Vitesse Semiconductor Corp. and Stryker Corp. rose after Standard & Poor's said the companies will be added to the S&P 500 on Monday. The newcomers replace Polaroid Corp., Springs Industries Inc. and Russell Corp., which S&P moved to the S&P SmallCap 600 Index.
Stocks that are added to the S&P 500 usually rise because money managers who seek to duplicate the benchmark's performance must buy the shares. There's about $1 trillion invested in portfolios that mimic S&P indexes, with the bulk of that devoted to the S&P 500.
QLogic, a designer of chips and circuit boards, rose $1.69 to $108.06; Vitesse, a maker of chips that speed data on fiber-optic networks, rose $2.88 to $59.13; and Stryker, an orthopedic-device maker, rose $2.07 to $54.
Today's decline reflects investors' tendency to sell after big gains, money managers said.
``Whenever you have a very outsized move on a particular day, the natural reaction'' is some selling the next day, said Uri Landesman, who helps manage $350 million at AFA Management Partners LP in Greenwich, Connecticut. ``The people who had money to spend just spent it, so that means there'll be more (prospective) sellers than buyers today.''
Best Regards, J.T. |
