Stocks sank Thursday as a surprisingly strong report on the manufacturing sector could not offset investor worries over the health of corporate profits and escalating violence in the Middle East.
The major indexes fell near lows reached in the period immediately after the September 11 attacks. "The market is feeding on itself," says chief strategist Peter Cardillo of Global Partners Securities Inc. "Investors continue to ignore good economic news. Instead they are focused on other factors like the falling dollar, the war on terrorism and corporate warnings and scandals."
On Thursday, the Dow Jones industrial average declined 129.80 points, or 1.36%, to 9,431.74. The Nasdaq composite index lost 32.09 points, or 2.14%, to 1,464.74. And the Standard & Poor's 500 index lost 13.70 points, or 1.34%, to 1,006.29.
The markets won't have any economic data to mull Friday, but investors may get some direction from companies that updated earnings after the close of trading Thursday. Home products retailer Bed, Bath & Beyond (BBBY) beat earnings expecations of $0.13 per share. It reported net earnings of $46.3 million, or $0.15 per share in the fiscal first quarter ended June 1 compared with $30.0 million, or $0.10 per share last year. Sales jupmed to $776.8 million, up 34.9% from 2001.
Solectron (SLR) also reported better-than-expected results after the close Thursday. The provider of electronics manufacturing and supply-chain management services reported third-quarter sales of $3 billion and a loss of $0.04 per diluted share, excluding a loss of $0.31 cents per share from charges and extraordinary gains. Analysts expected the company to post a loss of $0.05 per share.
Investors chose to focus on the latest onslaught of economic data and lowered financial forecasts, including a trimmed sales forecast from the world's top mobile phone maker Nokia (NOK). Finland's Nokia lowered its forecast for second-half sales growth to up to 10% from an earlier forecast of at least 15%. The company said it is confident of long-term sales growth of more than 10%.
The ugly company news and mixed economic data come in the middle of earnings confession season. The disappointing profit forecasts are coupled with reports of escalating violence in the Mideast. And continued worries about domestic security added to investors' nervousness.
The Philadelphia Fed's regional manufacturing survey showed that activity increased from 9.1 in May to 22.2 in June, its sixth consecutive positive reading and highest level since June 1998. General activity and new orders improved notably from readings in May, but the employment index was lower. Prices held steady, but many companies reported increases in recent months. Manufacturers in the region remain optimistic that business will continue to improve over the next six months.
A downgrade on major carmakers from Morgan Stanley pulled on the major indexes. General Motors (GM), which is a component of the Dow Jones industrial average, and Ford Motor (F) were lowered to a rating of "equal-weight" from "overweight." The firm also cut its view on the auto industry to "in-line" from "attractive."
On the earnings front, Goldman Sachs (GS) said quarterly earnings fell as a result of stock market weakness. The company reported $563 million, or $1.06 a share, down from $577 million, or $1.06 a share, a year ago.
Biotech concerns were also in the news. Troubled cancer-drug developer ImClone (IMCL) said federal regulators may take action against it for failing to accurately disclose information in December about its experimental compound Erbitux.
Genzyme General (GENZ) said second-quarter earnings would fall about 30% short of expectations amid lower-than-expected sales of its biggest drug, which treats kidney failure.
U.S. Treasuries sold off sharply in the wake of the stronger-than-expected Philly Fed report.
Other data fueled profit taking. In other economic reports, the Conference Board's index of leading indicators showed the index in May rose 0.4% for the month after an 0.4% drop in April. The increase was more broad-based than expected, with 6 of the 10 components unchanged or higher.
Jobless claims fell 2,000 to 393,000 for the week of June 15 from an upwardly revised 395,000 in the previous week. The four-week moving average of claims declined again and dropped below the 400,000 for the first time in three months.
The latest report on the trade deficit showed it widened sharply to $35.9 billion in April, from a revised $32.47 billion in March. Imports surged a greater than expected 4.7% after a tepid 0.5% gain in March. Excluding petroleum, imports were up only 2.7%. Exports rose 2.2% after a 1.2% increase in March. The wider than expected gap weighed on the dollar, and to some extent on Treasuries, says Standard & Poor's MMS.
European markets finished lower amid continued weak performance in U.S. stocks and ongoing concerns about corporate profits and violence in the Mideast. In London, the Financial Times-Stock Exchange 100 index closed down 72.10 points, or 1.55%, to 4,580.30. In France, the CAC 40 lost 103.51 points, or 2.63%, to 3,832.07. And in Germany, the DAX Index dropped 109.14 points, or 2.51%, to 4,245.68.
In Asia, the markets finished higher after sharp losses Wednesday. In Japan, the Nikkei added 136.80 points, or 1.31%, to close at 10,612.98. Tokyo stocks bounced back Thursday, led by bank shares, all on the heels of mushrooming technical buy-backs. Investors likely bought shares on dips after the Nikkei sunk to a four-month lows Wednesday.
In Hong Kong, the benchmark Hang Seng index added 81.30 points, or 0.76%, to close at 10,754.41.