Stocks Finish on Sour Note
Stocks finished with sharp losses Monday on bad news from telecom companies WorldCom (WCOM ) and Ericsson (ERICY ).
The Dow Jones industrial average lost 120.68 points, or 1.18%, to 10,136.43. The Nasdaq Composite index was off 38.19 points, or 2.13%, to 1,758.64. And the broader Standard & Poor's 500 index shed 17.53 points, or 1.56%, to 1,107.64.
"Down, down, down all day. There was lots of negative earnings news with no economic news to counter it," says Stephen Carl, principal and head of U.S. equity trading of the Williams Capital Group. "In addition, Bill Gates' testimony cast a pall over Microsoft and other techs. The only gainers were defensive issues."
The dismal news began late Friday when WorldCom slashed its 2002 revenue projection. The long distance and data services company blamed lower demand from business clients amid an industry wide slump. A slew of analysts downgraded the stock Monday and the shares skidded about 32% to about $4. The company is scheduled to report first quarter results on Thursday.
Early Monday, Swedish telecom equipment maker Ericsson warned it would not return to profit this year. The cellphone maker says it expects the market to stay weak throughout the year. It plans to slash 12% of its work force during 2002 and even more in 2003. The stock ended off 23% Monday.
Another former telecom high-flyer, Lucent (LU ), reported a narrower loss. The company, which has had eight straight quarters of losses, said it would cut more jobs and possibly take more charges to return to profitability. Lucent shared inched up 5%.
The disappointing updates among telecom companies comes amid another full docket of quarterly earnings reports. Just after the close Monday fiber optics specialist Corning (GLW ) said its first-quarter net loss was $90 million, or $0.10 per share, down from a $132 million profit a year ago, which included an after-tax goodwill amortization of $136 million.
And computer services concern Electronic Data Systems (EDS ) announced first-quarter results that beat the consensus earnings per share forecast of $0.71 by one penny. Revenues for the quarter fell short of Wall Street's expectations, however.
Telecom companies AT&T (T ) and SBC Communications (SBC ), which are Dow index members, slipped in sympathy with its troubled telecom peers.
Many other Dow members contributed to the index's losses. Shares of aluminum giant Alcoa (AA ) were down. And software giant Microsoft (MSFT ) was also a big loser. Microsoft shares were off as Chairman and co-founder Bill Gates told a federal judge that breaking up the company would harm the computer industry.
On a bright note, diversified manufacturer 3M Co. (MMM ) said its first-quarter sales fell 6.6%, but profits before charges rose on cost-cutting efforts. It reported profit before items of $487 million, or $1.23 a share compared with $467 million, or $1.16 per share, a year ago. The Dow component lended some support to the index.
On Tuesday, watch for more earnings reports from companies such as ExxonMobil (XOM ), Gillette (G ), Verizon (V ), and PepsiCo (PEP ).
Treasuries finished flat to higher in price Monday afternoon on broad weakness in the stock market. Two-year notes were flat while longer-dated Treasuries added modest price gains. A buyback Monday was received well, though results were on the lackluster side, says Standard & Poor's MMS.
No data were released Monday and Fed Chairman Greenspan's address of the Institute of International Finance tonight is not expected to move markets.
Economic data will pick up as the week progresses. Upcoming releases include: March durable goods orders, March new home sales, the first-quarter employment cost index, March existing home sales, weekly initial claims, and the advance reading on first-quarter gross domestic product.
European markets finished lower. The FTSE 100 in London ended down 22.10 points, or 0.42%, to 5,221.50, as Ericsson and Worldcom hit telecom and tech stocks. France's CAC 40 index fell 46.96 points, or 1.02%, to 4,559.46 amid an unsettling loss of Prime Minister Jospin in France's presidential election. Germany's DAX index lost 79.07 points, or 1.50%, to 5,205.48 after Germany's opposition parties scored a surprise landslide victory in a state election. Asia stocks ended mixed. Japan's benchmark Nikkei 225 index surged 209.63 points, or 1.82%, to 11,721.64. Hong Kong's Hang Seng stock index shed 112.76 points, or 1.00%, to 11,139.42.