bloomberg.com
Stock Market Update
08/28 16:17
U.S. Stocks Fall for Third Day in Four; Telecom and Brokerage Shares Drop
By Danielle Sessa
New York, Aug. 28 (Bloomberg) -- U.S. stocks fell for a third day in four after Nortel Networks Corp. said sales will miss its forecast and an analyst lowered profit estimates on Wall Street brokerages.
Morgan Stanley and Merrill Lynch & Co. helped lead a drop in financial shares, while Exxon Mobil Corp. and other oil stocks declined.
``People are worried about earnings, and the news isn't getting any better,'' said Ken Turek, who manages $1.5 billion at Northern Trust Corp. in Chicago. ``The market maybe went up too fast after July 23rd.''
The Standard & Poor's 500 Index fell 16.95, or 1.8 percent, to 917.87. All 10 of the benchmark's industry groups declined, with financial, telecommunications and energy shares contributing more than one-third of the loss.
The Dow Jones Industrial Average slipped 130.32, or 1.5 percent, to 8694.09. The Nasdaq Composite Index shed 33.40, or 2.5 percent, to 1314.38.
With today's drop, the S&P 500 has declined 20 percent for the year. Still, the index is up 15 percent from the five-year low it touched July 23.
Two stocks fell for every one that rose on the New York Stock Exchange and the Nasdaq Stock Market. Some 1.14 billion shares traded on the Big Board, 28 percent below the three-month daily average.
Nortel slid 19 cents, or 15 percent, to $1.04. The second- largest North American maker of telephone gear said third-quarter sales will drop as much as 10 percent from the second quarter after last month forecasting little change. The company also plans to cut 7,000 more jobs, citing lower spending by clients.
`Not Realistic'
``Demand across the board for the consumer and corporate (information technology) spending environment is weak,'' said James Gribbell, who manages $500 million at David L. Babson & Co. ``It's not realistic to expect fundamentals to improve for the rest of the year.''
Lucent Technologies Inc., Nortel's larger rival, dropped 22 cents to $1.67, and Corning Inc., the biggest maker of cable for fiber-optic networks, declined 35 cents to $1.94. Phone-service providers including Sprint Corp. have reduced spending amid slack demand.
Gribbell, whose Babson Growth Fund is down 23 percent this year, has been trimming holdings in semiconductor companies he bought last month because demand in the industry isn't picking up. He sold Linear Technology Corp. after shares gained as much as 39 percent this month and Maxim Integrated Products Inc. after it surged as much as 35 percent.
Companies including Intel Corp., Wal-Mart Stores Inc. and Best Buy Co. have disappointed investors with their projections for demand. A gauge of consumer confidence has fallen to a nine- month low, suggesting consumers are spending less money on items such as clothing and electronics.
Falling Forecasts
More companies are ratcheting down profit expectations this quarter as demand has failed to pick up.
Some 361 companies have reduced third-quarter earnings forecasts, up from 277 at the same point last quarter, according to Thomson First Call. About 167 companies have raised profit expectations for the quarter, down from 242 companies three months ago, First Call said.
``We were uncomfortable with the third- and fourth-quarter (earnings) numbers and that is starting to perhaps resonate with investors,'' said Northern's Turek, who predicts more companies will reduce third-quarter forecasts in mid-September.
Brokers Slide
Shares of securities firms declined after Prudential's David Trone lowered his profit estimates for Merrill Lynch, Bear Stearns Cos., Lehman Brothers Holdings Inc., Morgan Stanley and Goldman Sachs Group Inc. Trone cited a slump in debt underwriting and trading.
Merrill shares fell $1.25 to $36.24, Bear Stearns declined $1.97 to $63.59, Lehman dropped $2.02 to $56.22, Morgan Stanley shed $1.59 to $42.48 and Goldman Sachs slipped $2.02 to $77.08.
Exxon Mobil led a slide in oil shares after Organization of Petroleum Exporting Countries officials said the group will likely boost production to prevent a further rise in prices.
Exxon, the largest publicly traded oil company, slid $1.28 to $35.62 and ChevronTexaco Corp. dropped $1.10 to $77.
Sun Microsystems Inc. dropped 28 cents to $3.96. Laura Conigliaro, a Goldman, Sachs & Co. analyst, said the maker of server computers that run networks and Web sites will likely report revenue this quarter at the low end of its 10 percent to 15 percent forecast because of weakness in corporate technology spending.
International Business Machines Corp., the biggest maker of computers, dropped $1.90 to $76.06.
Alcoa, Semtech
Alcoa Inc. shed $1.63 to $25.07. Lehman Brothers Inc. analyst Peter Ward said orders at the world's biggest aluminum producer were disappointing in June and July. Aluminum supply outstrips demand in the industry and will hurt prices into 2003, he said.
Semtech Corp. tumbled $4.87, or 26 percent, to $14.05. The chipmaker said third-quarter sales may fall as much as 5 percent from the previous three months. Separately, the company said a customer claimed faulty chips caused some products to fail.
Philip Morris Cos. gained $1.41 to $49.31 after the world's largest cigarette maker boosted its dividend by 10 percent to 64 cents a share.
The Russell 2000 Index of smaller stocks fell 8.07, or 2 percent, to 389.38. The Wilshire 5000 Total Market Index, the broadest measure of U.S. shares, dropped 155.82, or 1.8 percent, to 8660.45. Based on changes in the Wilshire, the total value of U.S. stocks dropped $187 billion. |
