S & P Hit 5-Year Low; Dow Loses 133,
Nasdaq Drops 40
U.S. Stocks Fall; Drug, Financial Shares Lead as Profits Slump

July 18, 2002
By Danielle Sessa

New York, July 18 (Bloomberg) -- U.S. stocks fell, driving the Standard & Poor's to its lowest level since 1997, as companies including Automatic Data Processing Inc., Eli Lilly & Co. and PNC Financial Services Group lowered profit forecasts and executives said they see little sign of a rebound in technology spending.

``The earnings picture is not strong enough to get stocks out of their funk,'' said James Awad, who invests $900 million as chairman of Awad Asset Management.

The Standard & Poor's 500 Index slid 25.37, or 2.8 percent, to 880.66. Financial and health-care stocks contributed about half the loss. The U.S. stock benchmark hasn't been that low since Oct. 27, 1997.

Declines in Coca-Cola Co. and Philip Morris Cos. led the Dow Jones Industrial Average down 132.99, or 1.6 percent, to 8409.49. The Nasdaq Composite Index fell 40.30, or 2.9 percent, to 1356.95.

Stocks are having their third year of losses, with the S&P 500 down 23 percent year-to-date amid revelations that companies including WorldCom Inc. and Xerox Corp. inflated earnings. Stocks have lost more than $2.5 trillion in market value in 2002.

The broadest measure of the U.S. stock market, the Wilshire 5000 Total Market Index, dropped 15 of the past 17 weeks. This month, only 36 of the S&P 500's stocks have gained.

About two stocks fell for every one that rose on the Nasdaq Stock Market and on the New York Stock Exchange. About 1.7 billion shares traded on the Big Board, 20 percent above the three-month daily average.

Doubts on Economy

Microsoft Corp., which reports earnings after the close, led a decline in computer-related shares. Tom Siebel, chief executive of Siebel Systems Inc., said sales at the world's biggest maker of customer-service probably won't improve for the rest of the year. EMC Corp.'s Joseph Tucci echoed Siebel's forecast.

``The hard, cold fact is that we do not see the (information- technology) spending environment improving in 2002,'' said Tucci, chief executive officer of EMC, the largest maker of computer data- storage systems.

Stocks extended their slide after the Philadelphia Federal Reserve Bank said its general economic index expanded in July at the slowest pace in seven months, as weaker orders and shipments brought activity down from a four-year high.

``The economic recovery is definitely tenuous,'' said Anton Schutz, who manages the $43 million Burnham Financial Services Fund. ``People are pulling money out of stocks and putting it in their local bank,'' he said. Schutz is buying shares of regional banks, including Banknorth Group Inc. and Hudson City Bancorp Inc.

Eli Lilly shed $2.36 to $48.54. The maker of the antidepressant Prozac cut its 2002 earnings targets, saying regulators' concerns about manufacturing problems may delay new products. Lilly reported second-quarter earnings fell 20 percent as generic competition reduced Prozac sales.

Drug Stocks Dive

Drugmakers have dropped on concern that a lack of new drugs in development, regulatory hurdles and competition from cheaper medicines will hurt profits.

Bristol-Myers Squibb Co. slid $1.63 to $22.50. U.S. regulators said the its Vanlev high-blood pressure drug shouldn't be approved because of its side effects.

Biotechnology shares slumped after Biogen Inc. said profit dropped 40 percent in the second quarter as sales of its multiple sclerosis treatment Avonex slowed.

Biogen declined $2.20 to $32.85. Amgen Inc. fell $3.17 to $33.93, and MedImmune Inc. lost $1.60 to $25.40.

Baxter International Inc., the largest maker of blood treatments, plunged $11.41, or 26 percent, to $32 after saying sales rose less than analysts expected.

Johnson & Johnson, which makes drugs and medical devices, shed $1.51 to $49.73.

Banks Fall

Banks were the second-biggest decliners in the S&P 500 after PNC said profit may be hurt by a settlement with federal regulators over how the company accounted for units it created with American International Group Inc.

PNC, Pennsylvania's biggest bank, fell $6.91 to $49.69.

``People are wondering if there's more bad stuff out there'' with banks that could drag down other financial shares, Schutz said.

American International, the largest insurer, dropped $3.67 to $57.23.

XL Capital Ltd. dropped $9 to $65.50 after it boosted its loss reserves by $200 million for claims relating to the Sept. 11 terrorist attacks. The company had previously set aside $750 million to pay for claims.

Automatic Data Processing tumbled $9.75, or 24 percent, to $31.60. The world's largest payroll processor said 2003 profit may rise by less than 10 percent for the first time since 1961. The company cited falling employment.

Paychex Inc., a rival to Automatic Data Processing, tumbled $3.72 to $24.50.

Philip Morris fell $1.67 to $42.45. The world's largest tobacco company reported second-quarter profit that missed estimates and projected 2002 per-share earnings growth at the low end of the 9 percent to 11 percent range.

AOL Time Warner Inc. fell 66 cents to $12.45. The shares slid as low as $11.75. The Washington Post, citing company documents and former company executives, said that the company's America Online Internet unit inflated advertising revenue.

The Russell 2000 Index of smaller stocks fell 0.72 to 408.96. The Wilshire 5000 slipped 230.18, or 2.7 percent, to 8365.30. Based on changes in the Wilshire, the total value of U.S. stocks fell $264.7 billion.

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