Stocks Stumble on Slow Corporate Growth

Window-dressing at the end of the quarter caused choppy trading and solid volume

Blue-chips managed to eke out a positive finish Thursday, as investors fretted over the health of corporate earnings amid a broader economic slowdown. Techs, meanwhile, ended lower. Volume was solid at 1.23 billion shares traded

Volatility Thursday largely was due to end-of-quarter window dressing as portfolio managers scamper to improve their portfolios before reporting results, according to Larry Rice, chief investment officer at Josephthal & Co. He says that fundamentally, the market is still a bit overpriced.

And what of the bear market that many people are talking about? Rice says there is no bear, noting that bear-market multiples go down to 8, 9 or even 10 times earnings. Also, in a bear market, institutions unload stocks while margin calls run rampant on the street as a sense of panic prevails. "We've seen none of that," he says. "When you don't hear about investors trying to time the market [rather than cashing out], that's when you see the bottom." Looking ahead, Rice expects second quarter earnings to continue to deteriorate, followed by a slow turnaround by the fourth quarter.

"This is a slowdown, a profits recession, not an economic recession," Rice says. "Confidence is still relatively high, unemployment is still relatively good, and income is still rising." He concludes that while there are bad signs out there, such as the average consumer being saddled with debt, with incomes rising, people are still working and new homes being built, talk of a recession is just idle chatter.

Delphi Automotive Systems Corp. (DPH ) shares are trading off today after the auto parts supplier said it plans to close certain plants. The company also announced that it will layoff about 11,500 workers. Delphi plans to take a charge against first quarter 2001 earnings of $400 million after taxes.

On the Dow, International Paper Co. (IP ) warned of an earnings shortfall far off of Wall Street estimates due to the slowing U.S. economy.

The Dow Jones Industrial average ended up 11.24 points, or 0.11%, to 9,796.59. The Nasdaq gave up 33.59 points, or 1.81%, to 1,820.54. The S&P 500 fell 5.34 points, or 0.46%, to 1,147.95.

Treasury Markets

Treasuries finished lower, as bond investors barely reacted to the latest numbers on gross domestic product, which measures total national economic output. The figure was revised down to a 1% annual rate of expansion from a previously reported 1.1% as companies cut back production and investment amid a slowing economy. Meanwhile, the market awaited Friday's final figures on Michigan consumer sentiment.

Stocks in the News

Coca-Cola Enterprises (CCE ) reported it expects to post a $0.19 to $0.21 Q1 loss. The company says soft North American volume and competitive pricing milieu is limiting its ability to reached planned pricing levels.

Harman International (HAR ) sees Q3 sales 5% below expectations and sees $0.15 to $0.25 Q3 EPS from operations. The company forecast $0.55-$0.65 Q4 EPS on $450 to $475 million sales.

Emmis Communications (EMMS ) posted $0.31 vs. $0.30 Q4 after-tax cash flow per share on 47% revenue rise. The company posted $28.8 million vs. $25.6 million broadcast cash flow.

Ingersoll-Rand (IR ) cut its $0.60-$0.65 Q1 EPS (from continuing operations) forecast to $0.50-$0.52. The company notes that all of its major end markets deteriorated during March.

World Markets

In London, the Financial Times-Stock Exchange 100 index finished off 25.60 points, or 0.46%, to 5,588.40 amid uncertainties about economic strength and whether the Bank of England will cut rates again soon. In Germany, the DAX Index closed down 61.78 points, or 1.06%, to 5,879.30, amid reports Germany machinery orders fell at 5% annual rate in February. In Paris, the CAC 40 closed off 7.49 points, or 0.15%, to 5,157.92.

In Japan, the Nikkei 225 closed down 5.04% at 13,072.36 and the TOPIX 3.9% at 1,285.20. The net losers were telecom majors and technology shares. Other key sectors suffered losses across the board as well. Japan's five largest automobile manufacturers closed down, as did securities houses and banks. An S&P technical analyst said the decline was a correction, and the market should return to an upward trend. In Hong Kong, the Hang Seng closed down 173.52, or 1.35%, to 12677.89.

By Alan Hughes and Amy Tsao in New York

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