Stocks closed broadly lower Friday in a session marred by negative earnings pre-announcements -- the most prominent of which was Merck & Co. (MRK ). The pharmaceuticals giant lowered its second quarter guidance to earnings to $0.77 to $0.79 per share second quarter earnings per share and 2001 earnings to $3.12 to $3.18 per share.
Already beaten down indexes skidded further late in the session on reports that U.S. military units in the Persian Gulf have been put on the highest alert after a possible terrorist threat was detected.
Despite strength in semiconductor stocks -- including a surprising gain from Micron Technology (MU ) after an earnings warning -- the Nasdaq was unable to hold on to any gains as buying interest in the broader technology sector all but vanished. Micron reported a $0.50 per share third quarter loss from continuing operations (including a pre-tax inventory write down) compared with earnings of $0.50 per share for the year ago on 47% lower sales.
The retail apparel sector was also weak after Gap Inc. (GPS ) reported that it plans workforce reductions at its headquarters totaling roughly 5%-7%. The company said it will likely take a pretax charge of $10 million to $20 million in the second quarter.
Larry Rice, chief investment officer, Josephthal & Co., describes the recent market activity as strange. "They pound the drugs [stocks], then they love them," he says. "Retailers are the same way." The strategist says he's unsure whether the unusual market activity is a result of anticipation of a rate decrease from the Fed or portfolio adjustments as we near the end of the quarter. "Who would have thought Merck would dropped six points on a couple of pennies off and who would have thought Micron would be up when they had such a horrendous loss?"
Looking ahead to the June 26-27 FOMC meeting, David Blitzer, Chief Strategist for Standard & Poor's, sees a 25 basis point rate cut (For more of Blitzer's views on Fed policy, see the latest Ask the Analyst.)
Among other stocks in the news Friday, Symantec Corp. (SYMC ) shares skidded after the company cut first quarter guidance to earnings of $0.39 to $0.47 per share on sales of $225 to $235 million
The Dow Jones Industrial Average lost 110.84 points, or 1.03%, to close 10,604.59. The technology-laden Nasdaq Composite shed 23.93 points, or 1.16%, to 2,034.83. The broader S&P 500 index is lower by 11.69 points, or 0.95%, to 1,225.35.
Treasuries closed higher on weakness in U.S. equities as players geared up for the Federal Open Market Committee policy announcement on June 27.
European markets ended mixed. In London, the Financial Times 100 Index gave up 24.30 points, or 0.43%, to 5665.70. In France, the CAC 40 Index was up 48.70, or 0.95%, to 5183.67. Germany's DAX Index closed lower by 48.11 points, or 0.81%, to 5878.27 as German business confidence fell to a two year low in May with little prospect of recovery in Europe's biggest economy, the Ifo research institute said.
Asian markets closed mixed. Japan's Nikkei Index gained 82.18 points, or 0.63%, to close at 13044.61. In Hong Kong, the Hang Seng Index lost 13.43 points, or 0.10%, to close at 13174.02.
By Alan Hughes in New York