U.S. stocks sharply lower midday; AMD, Alcoa weigh
Tuesday January 11, 12:38 pm ET
By Susan Lerner
NEW YORK (CBS.MW) - U.S. stocks were sharply lower midday Tuesday as Alcoa offered up a disappointing start to the fourth-quarter earnings season.
A cautious sales outlook from Advanced Micro Devices set a nervous tone ahead of Intel's quarterly report.
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At midday, the Dow Jones Industrial Average (^DJI - News) was down 51 points, or 0.5 percent, to 10,570 while the Nasdaq Composite Index (NasdaqSC:^IXIC - News) skidded 13 points, or 0.6 percent, to 2,084 and the S&P 500 (CBOE:^SPX - News) shed 6 points, or 0.5 percent, to 1,184.
Decliners led advancers 2 to 1 on the New York Stock Exchange and 21 to 8 on the Nasdaq. Big Board volume was about 640 million shares while about 970 million shares traded on the Nasdaq.
Within the Dow, only 3M (NYSE:MMM - News) , United Technologies (NYSE:UTX - News) , Walt Disney (NYSE:DIS - News) , ExxonMobil (NYSE:XOM - News) and Honeywell International (NYSE:HON - News) were managing gains.
Hewlett-Packard (NYSE:HPQ - News) was the Dow's biggest decliner, sliding 3.6 percent after Morgan Stanley slammed the computer hardware maker with a downgrade. The broker cut its recommendation to "underweight," saying competition from Dell Inc. (NasdaqNM:DELL - News) and continued signs of supply chain inefficiencies increase the chance for near-term business execution missteps.
But the focus was really on earnings as Alcoa kicked off the reporting season with a weaker-than-expected report.
"One of the big worries about 2005 is how earnings are going to do," said Al Goldman, chief market strategist at A.G. Edwards.
"The news is scary when a company [Alcoa], despite product prices being up, has lower earnings due to higher energy costs and interest rate costs," he added.
Whether Wall Street takes Alcoa's report as a company specific issue or a universal problem will be determined by the mood of investors.
"If investors remain in a glass-is-half-full attitude, then they will assume it's company specific, but if investors decide to get grouchy, they're going to go into a mood of the glass is half empty and they're going to worry overall."
Right now, he said, the mood is basically optimistic but has deteriorated a bit because of the poor market start this year.
Shares of the aluminum giant (NYSE:AA - News) stumbled 1.6 percent after it said fourth-quarter profit fell 8 percent, despite higher prices for its aluminum, because of the cost of selling assets, decreased production at its Quebec smelter and higher materials costs. Its report of fourth-quarter earnings of 39 cents a share from continuing operations, excluding one-time items, was 2 cents shy of analysts' forecasts.
Advanced Micro (NYSE:AMD - News) , meanwhile, said it expected fourth-quarter sales to be "up slightly" from the $1.24 billion it posted in the previous quarter. Analysts polled by Thomson First Call had expected AMD to post sales of $1.35 billion, on average, for the quarter.
At least four brokers downgraded the stock, which tumbled 21 percent in morning trade.
Strategists were concerned about the disappointing start to earnings season but weren't ready to write off the remainder of the reporting period.
"I wouldn't want to base a new down market or another negative trend developing on the backs of Alcoa or AMD," said Barry Hyman, equity market strategist at Ehrenkrantz King Nussbaum.
As the season progresses, Hyman believes markets may start to see some counterbalance to these early-stage earnings.
"Even though there may be some downside in the near term, I think once we get deeper into the earnings season ... a lot of the concern as to earnings growth and GDP growth for 2005 will dissipate and the market will right itself and start another uptrend," he added.
European-based chipmaker ST Microelectronics (NYSE:STM - News) , meanwhile, also warned that fourth-quarter margins would fall short of forecasts. Its shares fell 4 percent.
The cautious outlooks came as Wall Street awaited a fourth-quarter report and outlook from Intel Corp. (NasdaqNM:INTC - News) , the world's largest chipmaker, set after Tuesday's closing bell.
More caution in the tech sector came from Unisys Corp. (NYSE:UIS - News) , which said it now expects to post a loss of 7 to 10 cents a share rather than its prior forecast for profit of 27 cents to 31 cents a share. Unisys shares fell 3.9 percent.
Nortel Networks (NYSE:NT - News) rose 4.5 percent after issuing its much anticipated audited financial statements for 2003. The telecommunications equipment maker said its restatements are complete.
Elsewhere, Taser International's (NasdaqNM:TASR - News) shares plunged more than 24 percent after the company said it may see some delays in orders in the first half of fiscal 2005 as potential customers test and evaluate rivals' products. Read more.
In the biotechnology space, Genentech (NYSE:DNA - News) fell 4.6 percent after it reported a 63 percent rise in fourth-quarter profit and forecast 25 percent earnings growth for 2005. The results were short of analyst estimates.
Banc of America, meanwhile, downgraded three names in the biotechnology sector, saying higher valuations warrant more stock selection. The broker cut its ratings on MedImmune (NasdaqNM:MEDI - News) , Chiron Corp. (NasdaqNM:CHIR - News) and Regeneron Pharmaceuticals (NasdaqNM:REGN - News) .
Checking other markets, the dollar was down 0.6 percent against the euro, which rose to $1.3159, and down 0.9 percent against the yen at 103.3. See Currencies.
The benchmark 10-year Treasury note was down 4/32 to 99 21/32 to yield 4.29 percent in morning trade.
Crude futures edged up 17 cents to $45.50 a barrel and gold futures climbed $2.90 to $422.60 an ounce. See Futures Movers. |
