U.S. stocks sink

June 13, 2001 Posted: 2347 GMT

NEW YORK (CNNfn) -- U.S. stocks crumbled Wednesday as investors sifted through an influx of negative corporate commentary and braced for more negative news.

For most of the session, Wall Street displayed lackluster interest at best with investors opting to sit on the sidelines. But selling gained momentum in the last hour of trading as traders stepped in to close out positions.

"Traders are dominating this market when investors are just waiting for these pre-releases to really reveal what these companies look like," said Barry Hyman, chief market strategist with Ehrenkrantz King Nussbaum. "We're just waiting for the first signs of a turn and there's little optimism as we go through this pre-release season and no one is focusing on the second-half of the year (2001)."

Some of the volatility also was attributed to Friday's "triple witching" options expiration. Triple witching is the quarterly expiration of futures, index options and individual stock options that happen the same day.

Many traders opt to close out of these positions ahead of the actual expiration day.

"I think we're in the twilight zone," Larry Wachtel, market analyst with Prudential Securities, told CNNfn's The Money Gang. "You have the confessional period followed by the summer doldrums, so there really isn't anything that's going to spur it to the upside."

The Dow Jones industrial average fell 76.76 points to 10,871.62 while the Nasdaq composite index slid 48.29 points to 2,121.66. The S&P 500 slipped 14.25 to 1,241.60.

Analysts weren't surprised that the Dow Jones industrial average gave back its gains, saying there still was a lack of conviction on the part of investors.

"The market is treading water in light of something it doesn't know if it's going to get or not," said Peter Coolidge, senior trader with Brean Murray & Co.

Analysts also cautioned that the markets were ripe for further churning as many investors had gotten ahead of themselves by betting the worst was over.

"We appear to be in a summer swoon in which investors are beginning to realize it's going to take a lot longer to turn the economy around than expected, and that we're currently going to have to bear through a series of pre-announcements that are less than comfortable," said Alan Ackerman, senior vice president with Fahnestock & Co.

But Brean Murray's Coolidge maintained there was a case to be made for an upward bias once the negativity weighing on the current quarter abates.

"To the extent we can march along relatively unscathed, the market should hold its own and trend higher," he said. "The market is looking for direction and will take its cue from the abundance of pre-warnings."

Market breadth was negative. Nasdaq losers beat winners 2,032 to 1,708 as 1.53 billion shares traded. Declining issues on the New York Stock Exchange topped advancing ones 1,588 to 1,506 as 1.06 billion shares traded.

In other markets, Treasury securities sagged. The dollar rose against the yen but was little changed versus the euro.

Looking for a catalyst

Investors found few reasons to jump into the markets, opting instead to brace themselves for further negative corporate guidance.

"We're in a period when capital spending has slowed to a waltz, corporate profitability is hardly visible, and balance sheets are just inundated with debt � that's not a comfortable picture," said Fahnestock's Ackerman. "Each day is a new adventure in the market. There's lots of money on the sidelines but no willingness to commit."

The Dow components that lost ground included Honeywell International (HON: down $1.21 to $42.26, Research, Estimates) and Eastman Kodak (EK: down $1.43 to $47.03, Research, Estimates).

Honeywell's stock tumbled Tuesday after European antitrust regulators indicated they want General Electric Co. (GE: down $0.92 to $47.85, Research, Estimates) to shed more than half of Honeywell's aerospace division in order to gain approval for the merger of the companies, according to the Wall Street Journal.

According to a Reuters report Wednesday, GE has offered to sell $2.1 billion in assets to satisfy those objections.

Technology stocks were led lower by Cisco Systems (CSCO: down $1.35 to $19.02, Research, Estimates), Oracle (ORCL: down $0.63 to $15.50, Research, Estimates), Intel (INTC: down $1.07 to $29.06, Research, Estimates) and Microsoft (MSFT: down $1.39 to $70.69, Research, Estimates).

ABN Amro cut its price target for Cisco to $22 from $24, citing challenging market conditions with no signs of recovery in the second half of 2001.

And, while Oracle has not pre-announced, CIBC World Markets said they do not expect a positive outlook when the software maker releases its fourth-quarter earnings on Monday.

The day's economic data also did little to inspire buying, as many just shrugged off the report.

Retail sales grew at a slower-than-expected pace in May, reflecting generally weak sales at stores, according to the Commerce Department. But a much higher-than-expected revision to April sales initially sparked hope among analysts and investors that consumer spending will pick up by the end of the second quarter.

But it may not be enough for investors who bet on a quick economic turnaround.

"These numbers are weak," Calvin Schnure, U.S. economist with J.P. Morgan, told CNNfn's Before Hours. "Even if you factor in the upward revision to the April data, this points to a slowing in consumer spending in the second quarter."

Warnings keep investors sidelined

Aside from economic data, investors had plenty of corporate guidance to sift through. Investors opted to hold on to their cash in anticipation of more negative corporate guidance.

"I would suspect the problem is we're in this period of pre-announcements and most of it is negative so we're sort of limping along," Ted Weisberg, floor broker with Seaport Securities, told CNNfn's Market Call. "The big test is how will the market absorb this negative news we know is coming."

Home appliance maker Maytag (MYG: down $0.31 to $32.17, Research, Estimates) warned that second-quarter results will fall 25 percent short of the company's expectations, reflecting weaker sales of floor care products.

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Blaming weakness in its instant imaging business, Polaroid (PRD: up $0.20 to $3.73, Research, Estimates) said it will eliminate nearly 2,000 jobs, or 25 percent of its global work force, during the next 18 months. The restructuring is expected to yield annual cost savings of $175 million to $200 million by the end of 2003.

CMGI (CMGI: down $0.93 to $3.21, Research, Estimates) reported a fiscal third-quarter net loss late Tuesday that more than doubled from the same period a year earlier, and said it expects losses to narrow in the current quarter.

Former Lucent unit Avaya (AV: down $1.64 to $13.36, Research, Estimates), a maker of communications software, warned Tuesday that it will cut 3,000 jobs, or 11 percent of its work force, as fiscal third-quarter revenue declines.

Lucent Technologies (LU: down $0.70 to $7.24, Research, Estimates), the financially troubled telecom equipment maker, has had its debt ratings cut to junk status by Standard & Poor's. The rating agency expressed "significant" concern about Lucent's ability to improve profit and cash flow.

Kraft Foods (KFT: Research, Estimates) � spun off by Dow component Philip Morris (MO: down $0.76 to $47.81, Research, Estimates) � raised $8.7 billion with its offering, making it the second biggest U.S. IPO ever. It was priced Tuesday at $31, above the original $27 to $30 range. Kraft shares rose 0.8 percent, retreating from their initial 3 percent pop. Kraft's product line is among the best known in American households. Besides its namesake macaroni and cheese, the line includes Oreo cookies, Jell-O gelatin, Maxwell House coffee, Cool Whip dessert topping and Minute Rice.

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