Stocks finished a bad week on a sour note Friday as Wall Street was socked with a one-two punch: dreary news from corporate America and a report on the sorry state of production in the nation's factories. The only salve for the market's wounds appeared to be hopes for more aggressive interest-rate cuts.
The three major indices finished at their lowest levels since late April, ending a rough week on Wall Street. The
Nasdaq Composite fell 15.6 points, or 0.8%, to 2028.4 after dropping below the 2000 support level briefly this morning. The
Dow Jones Industrial Average shed 66.5 points, or 0.6%, to 10,623.6, while the
S&P 500 fell 5.5 points, or 0.5%, to 1214.4.
For the week, the Nasdaq fell 8.4%, its largest weekly percentage drop so far this year. Over the five-day period, the Dow was down 3.2%. The S&P was down 4%.
On Friday, the market contended with earnings warnings from big names, including networking-equipment provider
, which fell 7% to $9.86, fiber-optic components maker
, which dropped 9.9% to $12.44, and fast-food giant
, which slumped 4.3% to $28.67.
News about the economy also raised the damage level. This morning's
report showed that manufacturing continued to weaken considerably in May. Industrial production fell 0.8% for the month, compared with expectations for a 0.4% drop. Capacity utilization came in at 77.4%, its lowest rate since August 1983. It had been expected to come in at 78%. Traders said that today's news raised speculation for a bigger interest-rate cut than has been expected from the
Federal Reserve's upcoming meeting on June 26-27.
"There is increased speculation for a 50 basis-point cut," said Rob Cohen, co-head of listed trading
Credit Suisse First Boston
fed fund futures are pricing in a 100% chance of a 25 basis-point cut at the meeting and a 40% chance of a 50 basis-point cut. So far this year, the Fed has cut rates five times for a total reduction of 2.5%.
Analysts also said that stocks were oversold at the opening due to
options-related order flow. Today was
triple-witching day, the quarterly expiration of index futures, index future options and certain stock options, which can result in massive trades and heightened volatility.
"I think program trading
computer-driven selling of baskets of stocks, as options positions unwinded, caused the market to open lower than it should have opened," said Bob Basel, director of listed trading at
Salomon Smith Barney
This afternoon's spiral down of the market showed that investors obviously are still concerned about earnings. So far, the second-quarter preannouncement season has offered Wall Street little reassurance that an earnings recovery will take place in the second half of this year. The past two weeks have brought mostly negative news. Of the 743 preannouncements collected this season by earnings tracker
Thomson Financial/First Call
, 65% have been negative. Some 34% of the negative warnings have come from technology companies, with bad news concentrated in the semiconductor sector.
This morning, Nortel predicted a major second-quarter loss, as well as announcing a new round of job cuts and a $2 billion financing deal. The company said it expects a loss of $1.5 billion, or 48 cents a share, on revenue of $4.5 billion. Analysts were forecasting a 6 cent loss for the quarter.
Nortel's warning preceded McDonald's, which forecast second-quarter earnings below Wall Street expectations, as a slowdown in Europe and mad cow disease affect its bottom line. Separately, Dutch
warned that second-quarter sales at its semiconductor unit will be 20% to 25% lower than first quarter levels and that it expects a loss in the second quarter and possibly in 2001. The company also said it sees no chip recovery in the fourth quarter. Philips shed 1.8% to $24.84.
Shortly after the close of regular trading yesterday, JDS Uniphase
reduced its financial targets for the fourth time this year and announced a writedown of equipment it can't sell or use. The company cut fourth-quarter sales guidance to $600 million from $700 million, citing "continued weakness in telecommunications carrier spending and inventory reductions by the company's system provider customers."
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The major European indices finished moderately lower. London's
fell 29.5 points to 5623. Across the channel, the Paris
dropped 53.2 points to 5244, and Frankfurt's
shed 90.2 to 5941.
The euro was lately trading lower at $0.8504. The greenback was slipping to 122.69 yen.
Asian markets were weaker overnight. Japan's
fell 0.44%. Hong Kong's
index slipped 1.1%, led by weakness in Chinese mobile phone carriers and airline Cathay Pacific, which was hurt by falling traffic volumes.
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