New Profit Warnings Sink Stocks

September 23, 2002

NEW YORK — Stocks tumbled Monday as investors sifted through a fresh batch of gloomy profit warnings from fiber-optic firm JDS Uniphase Corp. and retail giant Wal-Mart.

In midday trading, the Dow Jones industrial average was down 176.45 points at 7809.57. The Nasdaq Composite Index was down 35.40 points at 1185.69, while the broader Standard & Poor's 500 Index was down 17.66 points at 827.73.

The New York-based Conference Board reported its Index of Leading Economic Indicators fell 0.2 percent last month, the third straight month of declines. Analyst had forecast a 0.1 percent drop. 

Analysts say the strength of the economic recovery has been investors' main concern, particularly as companies begin issuing earnings warnings this month. Investors also will be watching to see if the Federal Reserve lowers interest rates at its meeting Tuesday.

"It's hard to figure where the bottom is," said David Dreman, chairman of Dreman Value Management, which oversees roughly $7 billion. "Many of these tech companies although they are down 90 percent or more, there is just nothing there. There's a greater and greater realization of that. Earnings are nonexistent."

The confessional period, when companies warn results will miss analysts' targets, heated up last week with dire outlooks from giants like computer services company Electronic Data Systems Corp. and financial leader J.P. Morgan Chase & Co. Former tech darling JDS Uniphase (JDSU) started a new week of warnings by cutting its sales guidance. JDS fell 8 cents to $2.06.

The threat of a second Gulf War added to Wall Street's cloud of worries. Iraq vowed on Saturday to reject any new Security Council resolution differing from an agreement reached with the U.N. secretary-general, while President Bush reviewed detailed military options devised by the Pentagon for a possible attack on Iraq. 

Oil prices surged with dealers pointing to Baghdad's decision to reject any new U.N. resolution as well as Israel's siege of Palestinian leader Yasser Arafat's Ramallah headquarters. Sustained tension in the Middle East, which pumps a third of the world's crude oil, has already driven oil prices up 50 percent this year. 

Wal-Mart Stores Inc., the world's largest retailer, added more pressure to the market with a $2.33 drop to $52.37. The Dow member said it expects September sales at stores open at least a year to come in near the low end of its growth forecast. Home improvement retailer Home Depot Inc. fell $1.65 to $29.58, adding more pressure to the Dow.

Qwest Communications International Inc., a local U.S. telephone company facing federal probes of its accounting practices, said on Sunday it expected to restate $950 million in revenues and costs for swaps of optical-network capacity. Qwest Communications dropped 14 cents to $2.71 after the telecommunications company said it is restating nearly $1 billion in revenue.

Tyco International fell 81 cents to $14.15 and ranked as the most active on the New York Stock Exchange. Though Tyco's board has said it was unaware of extravagant pay and loans given to top executives, minutes of the board's compensation committee show it knew of many of the payments months before the board took steps to disclose them, The New York Times reported. 

Semiconductor stocks dragged on the market after Credit Suisse First Boston cut its investment outlook on 14 chip equipment makers, including Applied Materials Inc. and KLA-Tencor Corp., citing a dampened capital spending environment. Applied Materials fell 89 cents, or more than 7 percent, to $11.05, while KLA-Tencor dropped $1.37, or almost 5 percent, to $26.65. 

Intel Corp., the world's largest maker of computer chips and a Dow component, fell 67 cents to $14.23. The Philadelphia Stock Exchange semiconductor index sank 4.51 percent.

Microsoft Corp. fell $2.28 to $45.18 and weighed on the Dow. Soundview Technology Group said the software giant is expensive and it will be difficult for Microsoft to show significant additional growth without a return in personal computer growth and information technology spending.

Gainers included Dole Food, which rose $5.26 to $29.75, after CEO David Murdock made a $1.2 billion offer to buy the remaining 76 percent of shares of the pineapple producer. 

Since Aug. 22, the Dow has lost more than 1,100 points to close below 8,000 last week as investors increasingly lost confidence due to mixed economic news, earnings warnings, and concerns about a war with Iraq.

Declining issues outnumbered advancers nearly 3 to 1 on the New York Stock Exchange. Volume came to 381.19 million shares, compared with 757.25 million traded at the same point Friday. Volume was especially heavy Friday because it was what is called a triple-witching session, the quarterly expiration of index futures and index and stock options 

The Russell 2000 index, which tracks smaller company stocks, fell 5.38, or 1.5 percent, to 361.90. 

In afternoon trading in Europe, Germany's DAX index was down 3.5 percent, France's CAC-40 fell 2.0 percent, and Britain's FTSE 100 dropped 1.8 percent. Japan's markets were closed Monday for Autumn Equinox Day, a national holiday.

Reuters and The Associated Press contributed to this report.
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