U.S. stocks finished mixed Tuesday, with blue chips posting gains while tech issues moved lower. The major indexes drifted in a narrow range for most of the session as investors awaited the outcome of the Federal Reserve's two-day policy meeting in Washington, D.C., which will wrap up Wednesday afternoon.
The Dow Jones industrial average climbed 36.90 points, or 0.41%, to close at 9,109.80. The broader S&P 500 index also edged up just 1.80 points, or 0.18%, to close at 983.44. The tech-heavy Nasdaq composite slipped from its earlier recovery, and closed in the red, down 5.24 points, or 0.33%, at 1,605.51.
The biggest movers of the day were companies with asbestos liabilities, which all rose sharply after a Senate agreement that may hasten passage of a bill limiting future liabilities.
Underperforming sectors included oil & gas, computer networking, and gold mining, as the price of the precious metal slumped over $5 per ounce to the $340 level.
Market opinion is fairly unanimous on the likelihood of a rate cut Wedensday, but Wall Street remains divided on whether Alan Greenspan & Co. will lower the Fed funds target rate by 25 or 50 basis points. Standard & Poor's continues to expect a rate cut of 25 basis points. "The market is probably on hold until it gets a decision on interest rates tomorrow," says S&P's MarketScope.
Looking ahead to Wednesday's assumed rate cut by the Fed, market strategist Art Hogan, at Jefferies & Co. says that with the 25 basis point cut already priced into the market, "at the very least the market won't move, and will be benign on Wednesday."
While the Fed occupied the spotlight, some economic reports vied for the market's attention Tuesday. Consumer confidence for June was down slightly to 83.5, from the revised May figure of 83.6. The BTM-UBS retail chain store sales index rose by 0.6% for the week ended June 21, up from 0.3% the prior week.
In company news, overnight delivery and shipping company FedEx (FDX) beat analysts' estimates by reporting fourth-quarter earnings of 92 cents per share, compared to 78 cents per share in the same period last year. Revenue was up 8% from the previous year. The company expects earnings for 2004 to come in at $3.00 to $3.15 per diluted share, as previously forecast. FedEx ended the day down 2.7%.
SoundView downgraded Cisco Systems (CSCO) to 'neutral' from 'outperform.' The firm's analyst says that with five weeks left in the fourth quarter, business tracking is in line with management's flat guidance. However, pent-up demand that fostered some optimism at the end of April has led to more subdued demand in May and June. Cisco closed down 2.8%.
Advanced Micro Devices (AMD) finished the day down 5.2% after cutting its second-quarter sales outlook to $615 million. Originally, the company projected sales of $715 million. The company said personal computer and handset sales were down in Asian markets, mostly due to the Severe Acute Respiratory Syndrome epidemic. The company will report its second-quarter earnings on July 16. S&P has downgraded the stock to 'sell' from 'hold.'
DoubleClick (DCLK) closed 1.1% higher after eBay (EBAY) announced entering into a global, multi-year agreement to use DoubleClick's online advertising solutions.
Juniper Networks (JNPR) closed 4.7% lower after Wachovia downgraded the company to 'underperform' from 'market perform.' The downgrade resulted from checks on service-provider spending in China and Europe, where spending slowed in the second quarter, and where Juniper Networks is particularly exposed.
Pediatrix Medical Group (PDX) slid 24% on news that the U.S. Attorney General's office is conducting a civil investigation into the company's Medicaid billing practices nationwide.
Prudential upgraded both Merrill Lynch (MER) and Morgan Stanley (MWD) to 'buy' from 'hold,' citing a faster-than-expected rebound in retail investor activity, valuation, and other factors. Merrill Lynch finished up 2%, while Morgan Stanley gained 1.6%.
Shares of Rite Aid (RAD) gained 4.2% Tuesday, after the company posted break-even earnings compared to a one cent loss per share last year, on 4.3% higher same store sales, and a 3.1% total sales rise. Rite Aid sees $16.5 billion to $16.7 billion in sales in its 2004 fiscal year.
Meanwhile, Lehman upgraded Rite Aid rival, CVS (CVS), to 'overweight' from 'equal-weight.' CVS finished 6.1% higher.
Advanced software-based test systems maker, Catapult Communications (CATT) says it expects its third-quarter revenue to be 15% to 20% lower than the company previously announced, falling in as low as $9.6 million vs. a previous $12 million guidance. The stock shed upwards of 20% during the day, but closed down 17%.
Palm (PALM) released its fourth-quarter earnings after the close of trading Tuesday, reporting revenues of $225.8 million for the fourth quarter, down 3.2% from the comparable quarter in 2002, but up 8 percent sequentially. As measured by GAAP, the company's net loss was $15 million, or 51 cents per share. The company noted a 5% increase in worldwide sell-through of Palm-branded handhelds, an improvement from six consecutive quarters of decline. Palm finished the day down 3.5%.
The economic news calendar for the remainder of the week is thin. The key data releases include home sales on Wednesday, and Michigan sentiment on Friday.
Companies scheduled to report earnings this week include Goldman Sachs (GS), 3Com (COMS), General Mills (GIS), and Nike (NKE).
Treasuries put in a solid performance ahead of tomorrow's FOMC policy decision, on expectations the Fed will continue to extend an olive branch to the bond market, says MMS International.
"Given the uncertainty over the Fed outcome tomorrow, the markets are likely to whipsaw violently," says MMS. MMS expects a 25-basis-point cut, "which should initially disappoint bond bulls, but an open-ended statement should temper losses." MMS suspects that the upside for Treasuries is limited.
European stock markets ended mostly lower on Tuesday, and lacking any other significant corporate news, the downbeat Unilever results from Monday continued to weigh. London's FTSE 100 index was down 27.00 points, or 0.66%, at 4,060.90. Shares of the Swiss engineering company, ABB, were down after a U.S. court approved an asbestos settlement -- $1.3 billion -- against the company late on Monday.
In Paris, the CAC-40 index closed down 15.90 points, or 0.51%, at 3,103.34. In Frankfurt, the DAX index closed 30.95 points higher, or 0.97%, at 3,217.34.
Asian markets finished lower on Tuesday. Japan's Nikkei 225 index backed across the 9,000 mark in its biggest one-day decline in three months, closing down 217.88 points, or 2.38%, to 8,919.26. Major bank stocks fell, such as UFJ Holdings, which lost 4.32%; Sumitomo Mitsui FG, which shed 4.53%; and Mizuho FG, down 3.92%. Blue-chips and high-tech shares were down across the board, such as Honda Motor, which lost 5.3%; Sony, down 3.5%; Nikon, down 2.3%; and NTT DoCoMo, which finished the day down 3.3%.
Profit taking continued on Hong Kong's benchmark Hang Seng index. Stocks fell 104.94 points, or 1.08%, to 9,629.35.