Tuesday's Market: Nasdaq Ekes Out Gain, Dow Slides as 'Oracle Rally' Collapses - TheStreet

(Updated from 4:24 p.m.)

The market teetered on hopes of an earnings recovery today.

Since the beginning of preannouncement season -- when companies say whether or not they expect to meet performance targets -- investors have debated the possibility of a revival in corporate profits, particularly in the tech sector. Today, even good news from

Oracle

(ORCL) - Get Report

was not enough to convince them it will happen this year.

The

Dow Jones Industrial Average finished down 48.71 points, or 0.5%, to 10,596.67. It has closed down four out of the past five sessions. The

Nasdaq Composite edged up 4 points, or 0.2%, to 1992.6, ending below the 2000 benchmark for a second day. The

S&P 500, a measure of the broader market, edged up 4.15 points, or 0.3%, to 1212.58.

"I'm not sure the market was ever really convinced that Oracle is a turning point," said Matt Johnson, head of Nasdaq trading at

Lehman Brothers

. (In the wake of the company's earnings announcement, the Nasdaq went up 63.3 points to 2051.9 at one point today. But it finished near its lows for the session.) "The market is really nervous about earnings; it's waiting for the other shoe to drop."

For the fourth quarter, Oracle posted slightly better-than-expected earnings and, more importantly, said

the worst could be over. In an interview with

TheStreet.com

, Oracle's CFO said he thinks profits hit a bottom during the fiscal fourth quarter. "If we're right, then I think we would see a gradual improvement in business conditions, and then by the end of the calendar year, things getting back to normal," Jeff Henley said.

The news gave the market a shot of adrenaline this morning that wore off later in the day. Basically, investors are concerned that Oracle's announcement could be an isolated event, and with good reason. In a research note today,

Merrill Lynch

semiconductor analyst Joe Osha lowered his second-quarter earnings estimate for

Advanced Micro Devices

(AMD) - Get Report

, a bellwether in the chip industry. Advanced Micro finished down 5.3% to $24.99.

In his comments, Osha added: "We do, however, believe that AMD is in a position to see earnings recover more quickly than Intel as the year progresses ... Our stance is supported both by market share gains at AMD ... and by our belief that AMD is exercising more discipline in its management of the supply chain." Intel, which reiterated its second-quarter earnings targets on June 7, closed down 3.2% to $26.67.

After two weeks of profit warnings, the market has sustained hefty losses. Since June 4, the Dow is off 4.2%, the Nasdaq is behind 7.6% and the S&P 500 is behind 4.3%.

Financial stocks rose today, as the case continues to build for the

Federal Reserve to cut interest rates by another half-point when it meets on June 26 and 27. The

fed fund futures, a good proxy for monetary policy, are currently pricing in 44% odds of a 50 basis-point cut at the next meeting.

Bank and brokerage stocks were also influenced by news

Lehman Brothers

(LEH)

reported a 14% gain in second-quarter profits from the year-ago period.

Goldman Sachs

(GS) - Get Report

reported second-quarter profits that were down 24% from last year's levels, but in line with earnings estimates. The

American Stock Exchange Broker/Dealer Index

gained 1.6%.

In economic news today, housing data for last month were released. The report showed that housing starts, or groundbreaking in new homes, began to decline in May. It marks the first sign of easing in what has been a very strong market. Housing starts fell 0.4% to 1.622 million units. April housing starts, however, were revised up to 2.3% growth from the previous estimate of a 1.5% rise.

There were encouraging words about the economy from U.S. Treasury Secretary Paul O'Neill. In a broadcast interview with Charlie Rose on Monday evening, O'Neill said he expects economic growth to pick up in the coming months. "I think there is a real possibility that the U.S. economy will see an upward movement in the rate of growth in the second half of this year, especially in the fourth quarter."

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Market Internals

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International

European markets moved higher in early trading on strength in banking and software stocks. The

FTSE 100

gained 8.8 to 5680.4. The Paris

CAC-40

rose 39.1 to 5199.4, and Frankfurt's

Xetra Dax

climbing 53.9 to 5922.4.

The euro was lately trading lower at $0.8594. The greenback was higher to 123.41 yen.

Asian markets closed mixed overnight. Tokyo's

Nikkei 225

slid 123.5 points, or 0.97%, while Hong Kong's

Hang Seng

rose 184.9 points, or 1.43%.

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