Wall St. plunges on economy woes, war talk
CNN/Money Staff Writer
NEW YORK (CNN/Money) -- U.S. stocks fell Thursday on sober comments from Federal Reserve Chairman Alan Greenspan about the economy, President Bush about Iraq, and brokerage firms about the chip sector.
The Dow Jones industrial average fell 201.76, or 2.35 percent, to close at 8,379.41. The Nasdaq composite index lost 35.77, or 2.72 percent, to 1,279.68. The Standard & Poor's 500 index dropped 22.54, or 2.48 percent, to end the day at 886.91.
"People were fairly attuned to Greenspan this morning, but I don't think anything he said had an impact one way or the other, and the tape almost stopped when Bush was speaking -- there was nothing surprising there. It's fairly quiet. I think we're suffering post-9/11 anniversary boredom," said Tom Shrader, head of listed trading at Legg Mason.
"There's just a lot of uncertainty and you're seeing that in the trading today (Thursday)," Shrader added. "Tomorrow's (Friday) our only big economic day of the week. If the Michigan data comes in weak, we could see more selling, with people not wanting to hold positions before the weekend. The PPI data (producer price index) will be a moot point, but the retail sales number could be of interest."
The preliminary reading on the University of Michigan's consumer sentiment index is expected to show a rise to 88.0 from 87.6 the previous month.
August retail sales are expected to show a rise of 0.5 percent, following a rise of 1.2 percent in July. Excluding the volatile auto component, sales are expected to show a rise of 0.1 percent, following a rise of 0.2 percent in July.
In addition, the Producer Price Index, a measure of the sale of goods at the wholesale level, is expected to have risen 0.2 percent in August after falling 0.2 percent the previous month.
The so-called core PPI, excluding food and energy prices, is expected to have risen 0.1 percent following a 0.3 percent decline in July.
After the close of trade, aerospace and defense manufacturer Honeywell International (HON: down $0.18 to $28.34), a Dow component, warned that third-quarter and full-year earnings per share will come in lower than what analysts are expecting, due to the sluggish economic recovery, among other factors.
Also after the bell, graphics software maker Adobe Systems (ADBE: down $0.73 to $18.45) reported third-quarter earnings of 22 cents per share, 3 cents better than expected. The company earned 28 cents per share in the same period one year earlier.
In prepared remarks for the House Budget Committee early Thursday, Greenspan warned of higher interest rates and reduced investment if Congress abandons fiscal discipline.
He also noted the tremendously negative impact of September 11 and the downturn in stocks, but said "the economy appears to have withstood this set of blows well -- although the depressing effects still linger and continue to influence, in particular, the federal budget outlook."
"I think Bush's comments are having an impact as there are a lot of questions about how and when and who should deal with Iraq. But in the short term, the jobless claims and the comments from Greenspan have a bigger impact," said John Davidson, president and chief executive officer of PartnersRe Asset Management.
"Greenspan talked very little about the current state of the economy and was really admonishing lawmakers, and he made it very clear that there will be no interest-rate cut announced after the meeting on Sept. 24," Davidson added. "I think this may have disappointed some investors hoping for a rate cut or something more aggressive to help stocks."
In an address to the United Nations General Assembly Thursday morning, Bush attempted to rally support against Iraqi president Saddam Hussein.
The speech highlighted a number of violations by Iraq of agreements made at the end of the Persian Gulf War to rid itself of its chemical, nuclear and biological weapons programs, including forcing U.N. weapons inspectors out of the country nearly four years ago. Bush said the United States is prepared to act on its own if the Iraqi leader is not forced to comply with previous commitments to disarm.
Prior to Bush's speech, U.N. Secretary-General Kofi Annan delivered a speech cautioning Iraq to comply with the U.N. resolutions, but also warning the United States that no member nation should act alone on major global issues.
Fear of the U.S. war involvement and its potential impact on global oil prices has unnerved stock investors in recent weeks.
In other economic news, the number of Americans filing new claims for unemployment rose to 426,000 last week from an upwardly revised 407,000 the previous week, the government said; economists expected 400,000 new claims. It marked the third consecutive week that claims came in above the 400,000 level.
"I think that's a psychological level more than anything else, but what's key is that the jobless claims are climbing," PartnerRe's Davidson added.
Techs get chipped
In corporate news, shares of semiconductor and semiconductor-equipment companies were under pressure following a pair of dour brokerage notes on the gear makers. That reversed the upward trend in the sector over the past week after Intel's mostly positive mid-quarter update last Thursday.
"To see a recovery at all, you're going to need to see a pick-up in techs. Today (Thursday), you're seeing a lot of weakness in the sector, particularly with chips," Hedi Reynolds, head of Nasdaq trading at Morgan Keegan, told CNNfn's Halftime Report. "Also the restaurant sector is down."
USB Piper Jaffray cut its 2003 earnings estimate for chip-equipment leader Applied Materials (AMAT: down $0.95 to $12.74) as well as KLA-Tencor (KLAC: down $1.89 to $31.55), among others, citing weak orders in September and October.
In addition, Lehman Brothers cut its 2003 chip-equipment revenue forecasts, saying that third-quarter orders could miss estimates and that the timing of any broad recovery seems elusive.
The news pressured Intel (INTC: down $0.92 to $15.70) and Novellus Systems (NVLS: down $1.30 to $23.64), among others.
Media and entertainment conglomerate AOL Time Warner (AOL: down $0.75 to $12.50) announced a number of new appointments at its America Online unit, as part of a broad management shuffle aimed to counteract the Internet unit's slowing growth in membership.
In addition, Goldman Sachs cut its full-year cash flow estimates for the company, citing the continued weakness in the AOL division. AOL Time Warner is the parent company of CNN/Money.
Salomon Smith Barney issued a negative note on Sun Microsystems (SUNW: down $0.15 to $3.22), the No. 1 Unix server maker, saying it continues to believe that the company's transformation to a hybrid platform and software-led company from a Unix provider will be disruptive to Sun's current business model.
The firm pointed out that Sun gets 35 percent of its revenue from the telecom and financial services areas, which remain challenged. The firm also said that it believes further cuts to 2003 and 2004 earnings-per-share estimates will be necessary.
Amid a broadly negative Dow industrial average, shares of McDonald's (MCD: down $1.03 to $20.31) stood out after both Goldman Sachs and CIBC World Markets issued wary notes on the fast-food retailer.
Goldman Sachs questioned whether new initiatives expected to be announced at the company's mid-quarter update next week will dilute focus and reduce near-term earnings growth. CIBC said that management could guide down estimates by 5 percent during the mid-quarter update.
Shares of consumer products maker Johnson & Johnson (JNJ: down $1.51 to $53.97) fell after brokerage house A.G. Edwards downgraded the stock to "hold" from "buy."
On an up note, gold stocks Durban Deep (DROOY: up $0.27 to $4.56), TVX Gold (TVX: up $1.08 to $15.15) and Ashanti Gold (ASL: up $0.39 to $5.69) all gained, while the price of gold gained $2.30 per ounce to $320.40.
"I think the rise in the price of gold and gold stocks is certainly a reflection of the uncertainty today (Thursday), as those stocks tend to do well when people are nervous," said Legg Mason's Shrader.
Treasury prices rose, pushing the 10-year note yield down to 3.96 percent. The dollar fell versus the yen and euro. Light crude oil futures fell 92 cents to $28.85 a barrel.
Market breadth was negative on fairly light volume. On the New York Stock Exchange, decliners beat advancers almost 8-to-3 as 1.17 billion shares changed hands. On the Nasdaq, losers topped winners by 2-to-1 as 1.18 billion shares traded.
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