Downpour Of Warnings Punish Stocks

Downpour of warnings punish
stocks

Techs pace the decline

NEW YORK (CBS.MW) – The stock indexes took another beating Tuesday,
with technology issues especially hard hit on the wings of another
parade of warnings in the group.

"The market pendulum that swung so far to the bullish extreme a
year ago is now swinging far into the bear territory, which also means
that a bounce, when it comes, will also be large," commented Robert
Dickey, technical strategist at Dain Rauscher.

Checking sector action, only gold and drug issues advanced while
utility, natural gas, financial, paper, cyclical and chemical issues
fumbled.

In tech sector action, only chip stocks – the hardest hit on Monday –
headed higher. Bombarded by profit warnings, software and Internet
issues tumbled. Networking shares also struggled significantly.

The Dow Jones Industrials Average ($DJ) shaved 122 points, or 1.3
percent, to 9,652.

The Nasdaq Composite ($COMPQ) fell 53 points, or 3.0 percent, to
1,729 while the Nasdaq 100 Index ($NDX) gave up 51 points, or 3.3
percent, to 1,465.

The Standard & Poor’s 500 Index ($SPX) fell 1.4 percent while the
Russell 2000 Index ($RUT) of small-capitalization stocks dropped 1.9
percent.

Volume came in at 231 million on the NYSE and at 503 million on the
Nasdaq Stock Market. Market breadth was negative, with decliners beating
advancers by 18 to 7 on the NYSE and by 22 to 7 on the Nasdaq.

Salomon ups equity weighting

Salomon Smith Barney upped its equity weighting to 70 percent from 65
percent Tuesday and shifting 5 percent of the asset allocation to
equities from bonds.

"Much of the tech wreck appears behind us but we are unlikely to
see more than a near-term trading rally in the tech sector. Over the
last two weeks, we have been indicating a growing bullishness in our
stance regarding equities, intimating that a bottom may be forming due
to the reversal of many of the peak indicators seen one year ago,"
the brokerage said in a note to clients.

Warnings clutter the tape

Declines in the business-to-business space were especially punishing
in the aftermath of Ariba’s warning. The stock (ARBA) tumbled 22 percent
to $5.06. The stock is off a staggering 90.7 percent since the start of
the year.

Ariba told investors after the close Monday that it now expects to
post a loss of 20 cents a share in its fiscal second quarter, a mile
wider than the 5-cent gain that had been expected by Wall Street.
Further, the company said it’s letting go about a third of its work
force and will scuttle its merger with fellow B2B outfit Agile Software
(AGIL). Ariba said sales were particularly weak in the U.S. and added
that it was especially bruised by its Internet customers.

Among other B2B stocks, Commerce One tumbled 21 percent, Agile 11
percent and PurchasePro 21.4 percent.

E.piphany (EPNY) tumbled 28.5 percent after warning late Monday that
it may post a net loss of as much as 40 cents per share in its first
quarter due to continuing economic uncertainty in North American
markets. Wall Street had expected a loss of 9 cents per share.

Redback Networks (RBAK) shed 14.5 percent after telling investors
late Monday that its first-quarter revenue would be lower-than-expected
and that it would slice 12 percent of its staff.

And Inktomi (INKT) lost a whopping 34 percent after informing
investors it’s slashing 25 percent of its work force. The company said
late Monday it now sees a second-quarter loss of 23 to 25 cents a share
vs. the 4-cent a share loss that had been expected by First Call.

Specific movers

Best Buy (BBY) jumped 15 percent after posting fourth-quarter
earnings of 89 cents a share, handily beating the First Call/Thomson
Financial estimate of 82 cents a share.

Best Buy said it expects comparable store sales at its stores to
increase modestly in the coming fiscal year, although consumer sentiment
is expected to remain soft, particularly in the first half. The retailer
said it expects its annual earnings to grow about 16 to 18 percent,
resulting in earnings-per-share of $2.15 to $2.20.

Treasury action

Government bond prices turned lower after posting modest gains in the
short end out of the gate.

Prices backpedaled on Monday as well, ignoring weakness in the equity
market and instead focusing on the slight improvement in the NAPM index,
which diminished market expectations for an inter-meeting rate cut.

The 10-year Treasury note shed 7/32 to yield ($TNX) 5.00 percent
while the 30-year government bond declined 6/32 to yield ($TYX) 5.505
percent.

On the economic agenda, February factory orders shed 0.4 percent
compared to expectations for a rise of 0.2 percent. View Economic
Preview and economic calendar and forecasts.

With equities continuing to falter and corporate earnings weak,
rating agency Moody’s Investors Service said lower-rated borrowers will
have greater debt repayment difficulties.

Moody’s defined the relatively strong first-quarter performance by
high yield bonds misleading, indicating that the severity of the
market’s sell-off at the end of last year was in part responsible for
the better showing in the first quarter.

"A much stronger performance by the equity market is necessary
if high yield bonds are to continue their relative outperformance,"
Moody’s warned investors in its daily research note.

The average stock is down 6.2 percent in 2001 and 27.4 percent from
the March 2000 Nasdaq peak and declining stock prices will make it more
difficult to complete an equity offering or sell assets to pay down
debt, Moody’s noted, adding that high-yield spreads widened 430 basis
points when the average stock price dropped 8.7 percent in 2000.

In the currency segment, dollar/yen dropped 0.5 percent to 126.04
while euro/dollar climbed 0.8 percent to 0.8857.