Today's Market: Stocks Stumble Despite Some Good Economic News

More Lucent woes and latest news on GE and Honeywell are downers for the major indices.
By Kristen French ,

(Updated from 9:40 a.m.)

Stocks opened weaker this morning as investors weighed news of continued growth concerns in Europe, more woes at

Lucent

(LU)

and a downgrade on

Corning

(GLW) - Get Report

against some encouraging economic data.

Investors are desperately seeking signs the economic slowdown has run its course. "The market jumps almost schizophrenically from believing everything is OK to believing everything is terrible," said Tom Gallagher, head of U.S. equity sales and trading at

CIBC World Markets

. People are focused on the growth in the economy and international growth.

The

Nasdaq Composite Index was lately off some 25 points to about 2097; the

Dow Jones Industrial Average was down about 94 points to 10,778; the

S&P 500 was off by 7.3 points to 1234, and the

Russell 2000 was lower by 4.2 points to 501.

News that

General Electric

(GE) - Get Report

and

Honeywell

(HON) - Get Report

proposed to divest $2.2 billion in Honeywell's business in their final merger proposal to European regulators was putting heavy pressure on blue-chips this morning. GE was lately up 1.3% to $48.45; Honeywell was down about 10% to $38.10.

The May

Producer Price Index

came in better than expected, seemingly confirming the

Fed governors' claims that

inflation is contained. The measure of wholesale prices rose 0.1% in May, compared with economists' expectations they would go up 0.3%, as they did in April. Excluding volatile food and energy prices, wholesale prices increased 0.2%, just above the expected 0.1% rise and on par with April's overall 0.2% increase.

Initial jobless claims for the week ending June 9 fell to 428,000 from the previous week's revised 440,000. But the four-week average rose to 424,500 for the week, from 415,500 the previous week -- its highest level since August 1992. And

business inventories for April held steady for the month at $1.198 trillion, while sales dipped for a second straight month, according to the

Commerce Department

.

But Europe shows signs of continued economic weakness, something U.S. investors have been paying more attention to as slowing growth there

takes its toll on corporate America. In its monthly report for June, the

European Central Bank

this morning lowered its economic growth forecast for countries using the euro to 2.2% and raised its estimate for inflation for the year to 2.3%. In December, the ECB said it expected growth of at least 2.6% and inflation of at least 1.8%.

And there was more trouble for telecommunications-equipment maker Lucent last night. The company's bid to sell two plants to

Flextronics

(FLEX) - Get Report

fell through, hindering its efforts to raise cash,

The Wall Street Journal

reported. Lucent is trying to raise $2 billion by Sept. 30 in order to meet the terms of a $4 billion revolving credit line with its banks. If it can't, the company won't be able to complete the split off of microelectronics unit

Agere Systems

. Lucent took the business public in March, but still holds a 58% stake. Flextronics was lately down 1.5% to $22.43.

Elsewhere, Corning was hit by a downgrade to neutral from

Merrill Lynch

in a note entitled Nuclear Winter. Our recent field checks lead us to believe that results in GLW's high-margin fiber business over the next few quarter will be below even our worst case scenario, said the report. Corning was falling 3.8% to $16.70 in early trading.

Some positive earnings news graced Wall Street after the close of regular trading yesterday. Chipmaker

Texas Instruments

(TXN) - Get Report

and

PepsiAmericas

(PAS)

, the No. 2 U.S. bottler of PepsiCo, both reaffirmed their earnings guidance. Texas Instruments said it expects to meet its second-quarter targets and PepsiAmericas reiterated its previously announced growth forecasts for the year.

But a couple of second-tier companies issued earnings warnings.

Silicon Storage Technology

(SSTI) - Get Report

, which designs a range of flash memory devices, said its second-quarter earnings would fall below targets. And though it didn't provide any specific financial guidance, software company

Micromuse's

(MUSE)

CEO reportedly described business conditions as "very, very hard." Micromuse was off 23.8% to $26.90 so far this morning.

The gush of earnings news that has rained down on Wall Street over the past two weeks has been mostly negative. Investors sent stocks soaring from late March through early May based on hopes of an economic and profits recovery in the second half of this year. But as a growing number of companies warn that their earnings will fall short of targets, the chance of a recovery before 2002 have started to look slimmer.

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Bonds/Economy

Bond prices were rallying this morning, following the release of some economic data. The benchmark 10-year

Treasury note was up 11/32 to 98 10/32, yielding 5.222%.

The 30-year note was up 9/32 to 96 6/32, yielding 5.638%.

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International

The major European indices were all moderately lower in early trading on continued concerns over weak economic and profits growth at home and abroad. London's

FTSE 100

was falling 57 points, or 0.98%. Across the channel, the Paris

CAC 40

was down 56.45 points, or 10.5%, and Frankfurt's

Xetra Dax

was down 50.72 or 0.83%.

Goldman Sachs

rejiggered its European portfolio overnight, raising the weighting of some technology hardware stocks, including

Nokia

(NOK) - Get Report

, and reducing its weightings in some food, retail and media stocks. Nokia, however, was continuing to slide this morning after warning earlier this week of financial problems.

The euro was lately trading lower at $0.8504. The greenback was slipping to 122.69 yen.

Asian markets were mixed overnight. Japan's

Nikkei 225

rose 0.18% to 12,846.7, while Hong Kong's

Hang Seng

index fell 2.03%.

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