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Updated from 4:08 p.m.


Stocks went out in a blaze of red, as concerns about future growth weighed on the market, and even on companies that served up solid earnings reports in the latest quarter.


Nasdaq lost 41.65, or 1%, to 3987.92, up from its session low of 3906.55 but unable to break back above the key 4,000 level. The

Dow Jones Industrial Average tumbled 183.49, or 1.7%, to 10,516.48. The

S&P 500 slid 22.04, or 1.5%, to 1,452.43. Internet Sector

index, the

DOT, lost 20.38, or 2.6%, to 778.85.

"We're seeing a lot of selling on

earnings news, whether it's good or bad," said Peter Da Puzzo, president of

Cantor Fitzgerald

. Investors are concerned we're going to have a more difficult second half of the year, he said, adding that recent trading has been characterized by a mix of apprehension and apathy, as people are more concerned about vacations than volatile markets right now.

Given that mood, it's not surprising that stocks with solid earnings news were taken down a few notches. Despite reporting in-line or better-than-expected earnings and getting a postclose lift last night, both

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TheStreet Recommends


(EBAY) - Get eBay Inc. Report




got swatted around.

Salomon Smith Barney

even raised its earnings estimates and price target on the latter this morning. eBay fell 3 9/16, or 6.3%, to 52 11/16 while Nortel lost 3 1/16 to 83 15/16.

Still, some strategists point out there is a positive side to this market psychology. "We've been so successful as investors by owning tech stocks that we have a short-term memory. Now we're getting our hands slapped and it's a pretty decent reality check," said Brian Belski, fundamental market strategist at

U.S. Bancorp Piper Jaffrey

in Minneapolis. But it means that people are actually doing research

on these companies. This bodes well for the market in the long term. If you think that and believe in the efficient market hypothesis, then the strongest stocks and fundamentals should outperform."

Meanwhile, market players focused on the near term are also keeping tomorrow's

Employment Cost Index

and Friday's second-quarter

gross domestic product

numbers on their radar screens. While the data probably won't yield any big surprises, it will help the market get a sense of whether the

Fed will raise interest rates when it meets on Aug. 22.

Fed funds futures are currently pricing in a 30% chance of a rate hike.

The ECI, designed to measure the change in the cost of labor, almost always moves markets and is considered one of the is one of the leading inflation indicators. GDP measures in the change in the market value of goods, services and structures produced in the economy.

On the Downside

Chip stocks led the Nasdaq's descent this afternoon. Although semiconductor manufacturer

LSI Logic

(LSI) - Get Life Storage, Inc. Report

posted earnings in line with expectations, Wall Street was disappointed by its revenues.

Prudential Securities

downgraded the stock this morning to accumulate from strong buy. LSI Logic lost 7 7/8, or 19.4%, to 32 5/8.

Internet top dog

(AMZN) - Get, Inc. Report

, meanwhile, was still stuck in the jungle ahead of its earnings report. The stock fell 1 9/16 to 36 1/16. The company reported a loss of 33 cents after the bell, beating analysts' call for a loss of 35 cents.

Amazon was downgraded by

Lehman Brothers

this morning to neutral from buy. The company reports earnings today after the close, and it has been rumored that it will miss estimates. Yesterday, Amazon was one of the few big-cap techs that didn't post big gains after it announced that President and COO Joseph Galli was leaving to become CEO of




was on top of that

story yesterday.

And watch out for


(XRX) - Get Xerox Holdings Corporation Report

! The embattled copier company's shares were shredded 3 3/16, or 17.5%, to 15.

This morning, Xerox lowered its earnings estimates for the third quarter and said second-quarter profits were cut in half because of weakness in sales of publishing machinery. The figure met a revised forecast from analysts surveyed by

First Call/Thomson Financial

of 30 cents a share. Yesterday,

Credit Suisse First Boston

cut the company's rating to hold from buy. Xerox has taken a beating in recent months after investors sued the company over its business practices in Mexico. Prior to that, the CEO had resigned.

Shares of


(MSFT) - Get Microsoft Corporation Report

, one of this afternoon's most actively traded stocks, slipped 1 3/16 to 67 13/16 after Mister Softee

asked the Supreme Court to send its appeal back to a federal appeals court.

"The sheer number of issues raised by Microsoft's appeals makes this case completely unsuitable for direct appeal" to the Supreme Court, the company said in a statement. District Judge

Thomas Penfield Jackson

ruled in June that the software giant abused monopoly power to prevent competition within the industry and should be split in two.

On the Upside



was faring better, up 15/16 to 29. After reporting earnings in line with estimates last night and saying it was comfortable with third-quarter earnings estimates, Compaq received upgrades from

Bear Stearns


Chase Hambrecht & Quist



and was faring much better.

JDS Uniphase


was bouncing back ahead of its earnings, which came out after the close. JDS lost a little ground yesterday after soaring for a week. JDS and handheld computer-maker



have been popular with index portfolio managers since

Standard & Poor's

announced it would add the companies to the S&P 500 at the end of this week.

In big merger and acquisition news, Germany's

Dresdner Bank



ended merger talks after they couldn't settle differences on the value of the deal. If the merger had gone through, they would have formed the second-largest bank in Germany.

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Market Internals

Breadth was negative on moderate volume.

New York Stock Exchange: 1,364 advancers, 1,475 decliners, 1.8 million shares. 85 new 52-week highs, 71 new lows.

Nasdaq Stock Market: 1,588 advancers, 2,366 decliners, 1.63 billion shares. 43 new highs, 133 new lows.

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Most Active Stocks

NYSE Most Actives

  • LSI Logic: 50.44 million shares.
  • Compaq: 37.8 million shares.
  • Xerox: 32.8 million shares.

Nasdaq Most Actives

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Sector Watch

Chip stocks were under broad pressure, a downturn apparently triggered by a wave of selling in LSI Logic following its second-quarter earnings report. The company's lighter-than-expected revenues prompted Salomon Smith Barney's Clark Westmont and Prudential Securities' Hans Mosesman to downgrade the stock.


Philadelphia Stock Exchange Semiconductor Index

slid 6.3%.

"LSI has just put the fear of semis into people," said Westmont. "Given that the stock was at almost 90 a few months ago, it just goes to show how low the semis can go when they're being sold." Solly has no recent underwriting relationship with LSI Logic.

The always-volatile


(RMBS) - Get Rambus Inc. Report

was getting hit hard following a


report that


(INTC) - Get Intel Corporation Report

will support synchronous dynamic RAM (SDRAM) for its next generation Pentium 4 chips. SDRAM is much less expensive than Rambus' direct RAM (RDRAM), the technology licensing of which Rambus depends on for its income.

One sector that was a bit greener than others was the

American Stock Exchange Pharmaceutical Index

, which rose 1.4% after a lousy day Tuesday.



slipped 1/4 to 43 1/16 after spending most of the day in the green, while

American Home Products


held onto a gain of 3/16 to 54 1/16.

Glaxo Wellcome


rose 5/8 to 54 5/8.


S&P Insurance Index

, continuing its run from yesterday, was 1.9% higher to 673.77.

American International Group

(AIG) - Get American International Group, Inc. Report

traded at an all-time high yesterday and continues to move ahead today, rising 1.1% to 125 1/8. Shares of AIG have been rising since July 21.

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Treasuries are slightly higher on light volume, awaiting the key economic releases tomorrow and Friday. Also included in Thursday's numbers will be June's

durable goods orders



Treasury Department

announced the details of tomorrow's buyback operation, which will target $1 billion of 30-year bonds maturing between February 2019 and 2021. Buybacks are the department's coordinated purchases of Treasury securities from primary dealers to take them out of circulation. Federal government surpluses have made it possible for the government to pay down debt, which takes the form of outstanding Treasury securities.

The benchmark 10-year Treasury note was up 1/32 at 103 12/32, putting its yield at 6.026%.

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European markets ended the day mixed.



was mildly lower following a plethora of earnings statements this morning from some big U.K. names, but had fallen back from earlier gains. The

FTSE 100

gave up 3.6 to 6387

Across the channel, Frankfurt's

Xetra Dax

was down 26.92 to 7302.12 and the Paris


was up 29.09 to 6493.

The euro traded at $0.9426.

Asian markets were mixed, with only Tokyo getting hit, while most other markets closed higher.

Tokyo stocks closed down despite excitement over a possible mobile-phone content deal between




America Online


in the U.S. The

Nikkei 225

index shed 70.98 to close at 16,502.61.

With worries over the near-term economic scenario in Japan due to a string of large corporate bankruptcies, the greenback continued to inch higher against the yen, closing at 109.2 yen in Tokyo trading. The dollar was recently trading at 109.17 yen.

Hong Kong's

Hang Seng

index jumped 244.89, or 1.4%, to close at 17,620.23 as investors speculated major banks to post healthy earnings results this week.

Elsewhere in Asia, Korea's


index rose 6.20 to 743.84, while Taiwan's


index gained 61.15 to 7961.54.

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