Stocks finished sharply lower on Thursday, after Merrill Lynch downgraded its investment rating on shares of tech bellwether Intel (INTC) and other chipmakers and related firms, igniting a tech sell-off that dragged blue chips down as well.
Also adding to negative sentiment was late afternoon news of a planned evening address by President Bush on revamping the nation's security -- providing Wall Street with a fresh reminder of the security threats facing the U.S.
On Wall Street, Merrill lowered its rating on the giant chipmaker to near term neutral from strong buy on concerns about future earnings. Merrill downgraded shares of other chipmakers as well.
And after the close of trading, the company provided its mid-quarter update. Intel lowered second-quarter revenue guidance from $6.4-$7.0 billion to $6.2-$6.5 billion. It said demand has been soft in Europe, though it expects to enjoy an orders recovery in the second half of the year. This compares unfavorably with First Call estimates of $6.67 billion, notes S&P MMS, and suggests the tech sector still faces some near-term challenges before the recovery can take hold.
Intel shares lost $1.18, or 4.19%, to $27 in the regular session Thursday, and shed another $2.33, or 8.63%, to $24.67 in after-hours trading.
The retailing sector also was in the spotlight Thursday, as the major chains announced May sales figures. Shares of electronics retailer Best Buy (BBY) were among the sector's leading gainers on Thursday, as it reported solid same-store sales growth. But discount merchandiser Target (TGT) was lower as it indicated May sales growth was modestly below its expectations.
Corporate news aside, recent economic reports have been constructive. But worries remain that earnings won't grow fast enough to justify current valuations, according to S&P.
The Dow Jones industrial average fell 172.16 points, or 1.76%, to 9,624.64. The tech-heavy Nasdaq composite index was off 40.38 points, or 2.53%, to 1,554.88.
The broader Standard & Poor's 500 Index slipped 20.76 points, or 1.98%, at 1,029.15. The S&P 500 was hurt by losses in techs and three particular groups that each have a large weighting in the index: pharmaceuticals, conglomerates and semiconductors. Gold futures, meanwhile, posted gains as investors sought refuge from a shaky stock market.
U.S. Treasuries rebounded from Wednesday's losses to finish higher in price as the market benefitted from another equity selloff.
In economic news, the Labor Department said the number of U.S. initial jobless claims fell to their lowest level in more than a year last week, slipping below the key 400,000 mark for the first time in 2-1/2 months. Initial claims dropped to 383,000 in the June 1 week, from a revised 415,000 in the prior week and the lowest since matching 383,000 in the May 5, 2001, week.
The market's primary focus on Friday will be the employment report for May, scheduled for release at 8:30 a.m. EDT. Investors will also be weighing updates on wholesale inventories and consumer credit for April.
European markets finished mixed. In London, the Financial Times-Stock Exchange 100 index was off 31.50 points, or 0.63%, to 4,957.60. In economic news, the CIPS building index fell to 56.1 in May from 56.6 in April. In France, the CAC 40 added 18.67 points, or 0.46%, to 4,098.18. And in Germany, the DAX Index was up 33.21 points, or 0.72%, to 4,657.52, on a report that German April factory orders rose 2.3% due to increased domestic demand.
In Asia, the markets ended lower. The Nikkei lost 88.93 points, or 0.76%, to 11,574.94, in the wake of caution ahead of the Friday's first quarter GDP outcome for Japan, as a lower-than-estimated report on first-quarter capital spending, released Wednesday, sparked fresh jitters over the country's economy and prompted analysts to revise down their GDP estimates. In Hong Kong, the market lost 21.61 points, or 0.19%, to 11,380.77.