Wall Street grapples with fear

Wall Street grapples with fear

Techs, blue chips skid

NEW YORK (CBS.MW) — Profit worries again besieged an already embattled market, driving the major averages deep into negative territory Tuesday. Two downtrodden areas of the market, such as chip and Net stocks, paced the market’s steep decline throughout the trading day.

“There’s a lot of pessimism out there. The market is taking a ‘show me’ approach to earnings. [Investors] want to see the results,” said Brian Slater, portfolio manager at Condor Capital Management.

Investors in particular are looking to two market bellwethers – IBM and Intel – to provide direction with their quarterly results.

In the meantime, the morning’s dose of earnings news, while generally positive, didn’t help investors shake off their concerns.

Market participants are worried that many companies, while meeting profit expectations for the third quarter, will lower their guidance for the fourth quarter and beyond. Teradyne was an example and the chip equipment maker saw its stock get punished as a consequence.

“Growth is slowing in a number of key areas and the market is adjusting to this,” remarked David Powers, senior technology analyst at Edward Jones. In the process, however, there’s always the risk of overshooting on the downside.

“Investors are in a ‘sell now and ask questions later’ mode,” Powers commented. “There’s a tendency to go from extreme enthusiasm to excessive pessimism.”

Culprits for the swift downward move in the technology arena after a positive start were the semis and Internet stocks. The Philadelphia Semiconductor Index ($SOX) suffered the largest loss, falling a heady 9.3 percent to its lowest level since mid-December 1999. Net stocks, meanwhile, wandered at their lowest levels since December 1998 and three stalwarts — Amazon.com, Yahoo and America Online — reached fresh 52-week lows.

In the broad market, oil, oil service, drug, utility and biotech shares fared well. But financial stocks took a drubbing, as did retail stocks, which resumed their downward trajectory following a 2-day respite.

The Dow Jones Industrials Average ($DJ) fell 149.09 points, or 1.5 percent, to 10,089.71.

Leading the Dow on the downside were shares of Walt Disney, Home Depot, Eastman Kodak, American Express, AT&T, Caterpillar and General Electric. Witnessing the best action were shares of Alcoa, Philip Morris, SBC Communications and IBM.

The Nasdaq Composite ($COMPQ) skidded 76.32 points, or 2.3 percent, to 3,213.96 while the Nasdaq 100 Index ($NDX) tumbled 77.27 points, or 2.4 percent, to 3,172.19.

Uncertainty – over earnings, the election and oil prices – breeds selling, noted Scott Bleier, chief investment strategist at Prime Charter.

“The market is making the assumption that the U.S. economy is heading toward a recession and discounting [a hard landing],” Bleier added.

The Standard & Poor’s 500 Index ($SPX) dropped 1.8 percent while the Russell 2000 Index ($RUT) of small-capitalization stocks lost 2.3 percent.

Volume checked in at 1.27 billion on the NYSE and at 1.93 billion on the Nasdaq Stock Market. Market breadth was sharply negative, with decliners outnumbering advancers by 21 to 8 on the NYSE and by 28 to 12 on the Nasdaq.

Separately, Trim Tabs reported that margin debt at all NYSE member firms rose $3.2 billion in September to $250.8 billion. Still, margin debt is down about 10 percent from its peak reached at the end of March.

Trim Tabs noted that even as margin debt rose 1.3 percent in September, market cap fell by 4 percent. Trim Tabs estimates that margin debt likely fell in the first two weeks of October as market cap dropped 10 percent to $16.52 trillion on Oct. 12.

Dow components report

A handful of Dow companies revealed their results Tuesday morning.

Citigroup (C) registered third-quarter earnings of 67 cents a share, beating the First Call estimate by two pennies and well ahead of the 52 cents earned in the year-ago quarter. Shares fell $1.44 to $49.38.

Honeywell (HON) checked in with a third-quarter profit from operations of 76 cents a share, matching the First Call estimate. The company expects to earn 86 to 88 cents a share in the fourth quarter and full-year earnings-per-share of $3.00 to $3.02. That’s below the First Call estimate of 88 and $3.03 cents a share, respectively. Shares lost 56 cents to $35.25.

Johnson & Johnson (JNJ) checked in with third-quarter earnings of 89 cents a share, beating the First Call estimate by a penny and up 14.1 percent from the year-ago quarter. The drug giant said the impact of the stronger dollar trimmed third-quarter sales by 3.6 percent. Shares edged up 13 cents to $97.06.

Caterpillar (CAT) made 62 cents in its third quarter, 4 cents ahead of the First Call estimate. Profit came in at $216 million, 1 percent lower than the third quarter of 1999. The company said the decrease was mainly due to unfavorable currency effects and higher costs. Shares fell $1.25 to $30.50.

Philip Morris (MO) said it made 99 cents in the third quarter, in line with the First Call estimate and ahead of the 87 cents made in the year-ago period. Shares rose 94 cents to $31.69.

Sector movers

Intel (INTC) traded close to the flat line throughout the session, ending up 50 cents to $36.19 following an 11.6 percent drop on Monday. The chip behemoth — which warned in late September that revenue would fall below its previous expectations due to waning demand in Europe — posted a third-quarter profit from operations of 41 cents a share, three cents ahead of the First Call estimate.

IBM, meanwhile, registered a third quarter profit of $1.08 a share, in line with Wall Street estimates. Big Blue (IBM) closed up $1.88 to $113 ahead of the news.

Among those struggling in the chip group, Micron Technology (MU) lost $4.69, or about 14 percent, to $29. PaineWebber lowered its view on Micron to “attractive” from a “buy” due to ongoing erosion of DRAM prices. Morgan Stanley Dean Witter also downgraded Micron to an “outperform” from a “strong buy.” Even PMC-Sierra, which saw its rating increased by PaineWebber to a “buy” from “attractive” due to good prospects for continued strong growth and relatively attractive valuation, saw its shares drop 63 cents to $187.06.

Among the equipment makers, Teradyne (TER) tumbled 27.4 percent to $25. The company posted third-quarter earnings-per-share of 84 cents, a penny ahead of the First Call estimate. However, the company expects fourth- quarter earnings of 66 to 67 cents, well below the 91 cents expected by First Call. Merrill Lynch lowered Teradyne to an “accumulate” rating from a “buy.”

Adding to the negative sentiment, Chase H&Q lowered its rating on the semiconductor capital equipment sector to a “market perform” from a “buy” indicating that capital expenditures will likely come in at or below 10 percent in 2001 versus widespread expectations of 25 to 20-percent growth levels. The stocks in the group include Applied Materials (AMAT), KLA-Tencor (KLAC), Novellus (NVLS), Teradyne (TER), ASM Litography (ASML), Mattson Technologies (MTSN), PRI Automation (PRIA) and Nova Measuring Instruments (NVMI).

Internet stocks bled Tuesday, with the sector’s bellwethers getting pummeled. America Online (AOL), for example, fell over 17.1 percent to $43.60 — a new 52-week low — ahead of its quarterly earnings report on Wednesday. First Call is anticipating a profit of 13 cents a share for AOL, which is in the process of merging with Time Warner. And Yahoo (YHOO) lost 11.4 percent to $48.94 while Amazon (AMZN) erased nearly 10 percent to $21.94.

In the meantime, good earnings new failed to inspire financial stocks Tuesday, with brokerage stocks pacing the decline. Concerns over trading volume and losses in the high yield sector, particularly telecoms, continued to hobble the sector. The Amex Securities Broker/Dealer Index ($XBD) ended down 2.8 percent but came well off session lows.

Merrill Lynch (MER) posted third-quarter earnings of 94 cents a share, handily beating the First Call estimate of 86 cents a share. The stock slipped 56 cents to $57.81. “There’s no doubt that the issues in telecoms are going to slow activity [in Europe],” said Merrill’s finance chief Tom Patrick in a mid-morning conference call. And Charles Schwab (SCH) posted a third-quarter profit from operations of 12 cents a share, in line with the First Call estimate and ahead of the 11 cents it made in the year-ago quarter. Shares fell 2.8 percent, or 88 cents to $30.63.

Bond focus

Over in the Treasury arena, prices were up markedly, catching a steady bid as the equity market headed south with a vengeance.

The 10-year Treasury note gained 15/32 to yield ($TNX) 5.68 percent while the 30-year bond climbed 22/32 to yield ($TYX) 5.77 percent.

On the economic agenda Tuesday, September industrial production rose 0.2 percent versus the expected 0.1 percent increase while capacity utilization came in at 82.2 percent. .

Wednesday will see the release of the September consumer price index, seen rising by 0.4 percent overall and by 0.2 percent at the core, which excludes the volatile food and energy components. View Economic Preview, economic calendar and forecasts and historical economic data.

Cornering the currency market, the dollar slipped 0.1 percent to 107.95 against the yen while euro/dollar gained 0.5 percent to 0.8541.