Dow Closes Down 111; Nasdaq Slips 24
Following Earnings Warning From Merck, Dow Industrials Close Down 111 to 10,605, Nasdaq Slips 24 to 2,035
By LISA SINGHANIA
AP Business Writer
biz.yahoo.com
NEW YORK (AP) -- An earnings warning from Merck sent stocks sliding Friday as Wall Street got another demonstration of how weak the business environment remains.
The news was a reminder that even sectors considered to be less risky in a struggling economy, such as health care, are still vulnerable.
``Merck is the type of company you don't expect to miss,'' said Rafael Tamargo, director of equity research at Wilmington Trust. ``This shakes confidence a little bit.''
The Dow Jones industrial average closed down 110.84 at 10,604.59, a 1 percent decline, ending a two-day winning streak.
Broader stock measures also fell. The Nasdaq composite index was off 23.92 at 2,034.84, a nearly 1.2 percent drop. The Standard & Poor's 500 index fell 11.69 to 1,225.35, a loss of 0.9 percent. Both indicators had closed higher the last three sessions.
All three indexes ended the week essentially flat, with the Dow down 0.2 percent, while the Nasdaq rose 0.3 percent. The S&P gained 0.9 percent.
The selloff began Friday morning when Merck reduced earnings expectations for the second quarter and the year because of lower-than-anticipated sales of Vioxx, its arthritis and acute pain medication.
Merck ended the session down $6.67, nearly 9 percent, at $67.80. The stock is a Dow component, so its losses strongly affected the blue chip index.
The warning pulled down other health care stocks, too, including Pfizer, which fell $2.08 to $42.79.
Manufacturing and retailing stocks also were weak. General Motors fell $1.96 to $62.86, while Gap dropped $1.51 to $32.03 after announcing it would eliminate up to 700 jobs, about 7 percent of its work force, and scale back on expansion plans.
In the technology sector, ON Semiconductor Corp. fell 19 cents to $4.75 on word its second-quarter revenue will be 12 to 15 percent below the $361 million in the previous quarter because of weak business.
But the news wasn't all bad for tech issues. Investors bought some networking and fiber-optic equipment makers, including Ciena, which rose $2.26 to $41.50.
``There appears to be a rotation into some of the big-cap tech names,'' said Jon Brorson, director of equities at Northern Trust. ``It's hard to say why. The chatter has been that the economy is starting to firm, but I'm not sure that's the case.''
Warnings and layoffs have become common on Wall Street this month as the reporting season for second-quarter earnings approaches.
Although most investors were expecting results to be weak, especially compared with last year when the economy was stronger, the extent of the negative preannouncements has caught many off guard, particularly in technology.
The bad news has also accelerated the pullback from this spring's huge rally, when investors bought stocks on hopes of a business turnaround by year's end. Now many market watchers are predicting that recovery will not occur before 2002 -- even if the Federal Reserve cuts interest rates for a sixth time this year as expected at its meeting next week.
The hope of another interest rate cut helped push stocks up Thursday, but many analysts are doubtful that another reduction will cure the market's woes with more bad earnings news still ahead.
``People are still very unsure, very skittish about the market,'' Brorson, the Northern Trust equities director, said. ``You've got to still churn through what's going to be more preannouncements, then earnings and there's still really no visible sign of when things are going to improve.''
Declining issues led advancers nearly 3 to 2 on the New York Stock Exchange. Consolidated volume came to 1.39 billion shares, compared with 1.77 billion Thursday.
The Russell 2000 index fell 9.17 to 488.65.
Overseas, Japan's Nikkei stock average rose 0.6 percent. Germany's DAX index fell almost 0.1
percent, Britain's FT-SE 100 rose 0.4 percent, and France's CAC-40 gained nearly 1.0 percent.
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