Reuters Finance News
Stocks Sag, Pausing for Breath After Rally
Apr 20 4:41pm ET
By Elizabeth Lazarowitz
NEW YORK (Reuters) - Stocks slipped on Friday, pausing for breath after a big rally spurred by a surprise Federal Reserve interest-rate cut, as a mixed bag of earnings dampened investors' buying enthusiasm.
Wall Street still posted strong gains for the week, helped by the Fed's action to revitalize the U.S. economy. Investors this week also became emboldened by upbeat results from tech bellwethers like International Business Machines Corp. . But on Friday, stock buyers took a break.
"It went too far, too fast," said John Forelli, senior vice president at Independence Investment Associates, which oversees $20 billion. "We should be happy if the market holds on to half the gains we had this week."
High-tech shares got caught in a tug-of-war on Friday, pulled between strong results from bellwether Microsoft Corp. and disappointing sales from Sun Microsystems .
Blue chips also sank, led by drug giant Merck & Co. , which slumped nearly 5 percent amid fears its arthritis medicine Vioxx might miss yearly sales forecasts.
The technology-laced Nasdaq Composite Index <.IXIC> fell 18.76 points, or 0.86 percent, to 2,163.38.
The blue-chip Dow Jones industrial average <.DJI> dropped 113.86 points, or 1.06 percent, to 10,579.85, while the broad Standard & Poor's 500 Index <.SPX> slipped 10.71 points, or 0.85 percent, to 1,242.98.
For the week, the Nasdaq gained 10.3 percent, while the Dow rose 4.5 percent. The S&P 500 was up 5 percent for the week.
Of the 235 companies in the S&P500 that have reported earnings so far, 57 percent have beat expectations and 30 percent have met them. About 36 percent of the companies in the index, however, have lowered their profit forecasts because of the weak economy, according to market research firm Thomson Financial/First Call.
"The constant barrage of bad earnings pre-announcements is pretty much behind us and we can look for more positive news," said Donald Berdine, chief investment officer at PNC Advisors.
But jittery investors pocketed profits from a recent rally that has sent the tech-packed Nasdaq soaring 32 percent since hitting its lowest level in more than two years on April 4. The Nasdaq still is down about 57 percent from its March 2000 high, but the race back into the tech sector has given some investors hope that major stock market gauges have reached a bottom.
"That doesn't mean that we're bouncing off it strongly and we're off to the races, but it gives people confidence that you can start putting your money on the sidelines to work," Forelli said.
Sun Microsystems fell more than 5 percent after the network computing giant missed a lowered sales target. Although its earnings were in line with forecasts, the company said it was not clear if the economic downturn was ending. Sun shares dropped $1.00 to $19.71.
Microsoft, the most active on Nasdaq, was up 1.4 percent after the company's results topped estimates on strong sales of its Windows 2000 software. Microsoft gained 96 cents to $69.
Canada's Nortel Networks Corp. reported a loss on Thursday in line with an earlier warning, but the world's biggest telecommunications equipment supplier said earnings could improve in the next quarter as it cuts 5,000 more jobs and trims manufacturing costs. Nortel fell 85 cents to $16.95 on the New York Stock Exchange.
Traders also eyed developments in Latin America, where Brazilian and Argentine stocks extended losses on fear of possible debt default in Argentina and a high-level political scandal brewing in Brazil.
But they mainly focused on the flood of quarterly results from companies here and abroad as hopes grew that America's corporate earnings picture, if not improving, has at least stopped getting uglier.
Nevertheless, it will take time before the Fed's interest- rate cuts take hold and corporate earnings start to show improvement, analysts said. The Fed lowered key short-term interest rates by half a percentage point this week, its fourth rate cut so far this year.
On Friday, shares of Internet auction site EBay Inc. climbed on sharply higher sales and earnings, offering a rare piece of good news for the depressed Internet sector. EBay rose 66 cents to $50.65.
Downbeat earnings by mobile phone maker Ericsson ,of Sweden, however, threw cold water on the recent high-tech rally. Ericsson fell more than 16 percent, down $1.17 at $5.91.
Underpinning the Dow was strength in Boeing Co. , up $1.07 at $61.70. The world's largest aircraft maker posted profits that easily beat estimates. But it was dragged down by financial shares, which eased back after posting gains in the wake of the Fed's action. Citigroup fell 88 cents to $49.42, and American Express Co. dropped $1.46 to $41.50.
Biotechnology shares weighed on the Nasdaq market after sector bellwether Genentech Inc. slumped more than 8 percent, down $5 at $52, after the company and its Swiss partner said a pivotal stage trial of a heart failure drug failed to show the drug's effectiveness. The Nasdaq Biotechnology Index <.NBI> dropped 3 percent. |
