Stocks Pounded by Bad News

Chip giant Intel's sober outlook, and some gloomy headlines from other marquee names, drove U.S. markets lower

Wall Street stocks swooned on Wednesday as investors bailed out of companies on fears about future profits from such big names as Intel Corp. (INTC ), the No. 1 computer chipmaker.

On Wednesday, the Dow Jones industrial average was pounded lower by 211.88 points, or 2.14%, at 9,712.27 after the sell-off gained steam late in the session. The Nasdaq Composite Index lost 56.45 points, or 2.82%, to 1,944.46. The broader Standard & Poor's 500 Index was off 18.62 points, or 1.62%, to 1,127.57.

Intel, a tech bellwether, said it sees first-quarter sales of $6.4 billion to $7.0 billion, which means revenue would be no better than flat compared with the fourth quarter. The component of the Dow Jones industrial average also said it would slash its capital spending budget by 25% this year, a greater figure than analysts had expected.

Fellow Dow member J.P. Morgan Chase (JPM ), the second largest U.S. bank holding company, said it booked a fourth quarter net loss of $332 million, blaming problems including Enron Corp.'s bankruptcy and Argentina's economic crisis.

Also dragging on the Dow was diversified conglomerate Minnesota Mining & Manufacturing Co., amid investor fears about the company's exposure to asbestos litigation linked to its respirators.

One company bucking the down trend was eBay (EBAY ), the wildly popular Internet auction site, which posted profit growth and upped its earnings estimates for the first half of 2002.

But otherwise, the gloomy news continued unabated. AMR Corp. (AMR ), the parent of American Airlines, reported its largest-ever net loss of $798 million in the fourth quarter. American Airlines, the world's largest air carrier, lost two planes in the September 11 terrorist attacks and another one in an unrelated crash in November.

Meanwhile, Continental Airlines (CAL ), the fifth-largest U.S. carrier, posted a $149 million fourth-quarter loss on lower revenues stemming from the September 11 attacks and the rocky economy.

Companies that didn't lose money in the latest quarter generally were reporting big drops in profit. General Motors Corp. (GM ), the world's largest automaker, said its fourth-quarter earnings before one-time items dropped 58%.

And discount retailer Kmart Corp. (KM ) lost more ground as speculation mounted about what steps the struggling company will take next. A meeting of the company's board of directors earlier this week failed to produce any statement from the company.

On the economic data front, the Consumer Price Index, a key gauge of inflation at the consumer level, fell by 0.2% in December, from an unchanged reading (unrevised) in November, while the closely watched core rate, which excludes volatile food and energy prices, rose just 0.1% from an unrevised 0.4% gain in November.

The 1.6% headline gain for all of 2001 was the lowest since 1998. According to Standard & Poor's economic research unit MMS, ongoing weakness in energy and tobacco prices contributed to the tame result.

But the U.S. manufacturing sector continued to be weak in December. According to the Federal Reserve, U.S. industrial output fell 0.1% that month, marking the fifth straight month of declines. Last year was the worst year since 1982.

Treasury Market

Prices of U.S. Treasury issues fell Wednesday as market players booked profits from recent rallies. The Fed's Beige Book, an anecdotal report of the economy's health, said the economy is "generally weak" but there are some signs of "scattered improvement." The report also acknowledged that a recovery is likely by "midyear or earlier, but the timing and strength are uncertain." S&P MMS says these remarks were consistent with much of the recent commentary by Fed officials.

Additionally, the report said that while retail sales remain overall weak, there had been some pick-up. Manufacturing is showing signs of a rebound in some regions. It's not obvious from this report that another interest rate cut is in the offing -- but it doesn't shut the door on one, either.

In other economic news, U.S. business inventories plunged 1% in November. Sales were down 1.4%. The inventory-to-sales ratio held steady at 1.39. The data will pull down fourth-quarter GDP, according to MMS, but should imply a sizeable bounce-back in the early part of this year.

World Markets

European markets ended Wednesday's session with losses. In London, the Financial Times-Stock Exchange 100 index shed 38.30 points, or 0.74%, to 5,127.60 after a report that UK unemployment rose 2,000 in December, the third consecutive monthly increase. But the unemployment rate remained unchanged at 3.2%.

In France, the CAC 40 lost 92.92 points, or 2.06%, to 4,425.50.

In Germany, the DAX Index lost 77.84 points, or 1.54%, to 4,984.20 as the U.S. market was indicated to open lower.

In Asia, the markets slipped. Japan's Nikkei-225 index gave up 30.47 points, or 0.30%, to 10,177.58 as shares of chip-equipment makers suffered from news of poor December sales. In Hong Kong, the Hang Seng index was off 49.50 points, or 0.45%, to 10,964.09.

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