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Archive for Thursday, July 27, 2000

Stock prices continue to fall on disappointing earnings

July 27, 2000

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— Another batch of disappointing earnings reports pushed stock prices lower Wednesday and left worried investors mulling the possibility of shrinking profits in the second half of 2000.

The Dow Jones industrial average closed down 183.49 at 10,516.48, according to preliminary calculations.

Broader stock indicators also were lower. The Nasdaq composite index rebounded from a loss of more than 100 points early in the session to end down 41.85 at 3,987.72. The Standard & Poor's 500 index was down 22.05 at 1,452.42.

Investors' worst fears for the coming months seemed to be confirmed Wednesday when car maker DaimlerChrysler said 2000 profits would fall below 1999 figures, despite solid first-half results. DaimlerChrysler's stock rose $1.313 to $53.563 in spite of the dismal forecast.

In addition, Xerox Corp. chairman and chief executive Paul Allaire said Xerox investors should make a "significant downward adjustment to current second-half expectations," a warning that earnings should slow during the next six months. The copy machine maker's shares fell $3.313 to $14.875.

All of the Dow Jones index's technology components lost ground, led by computer maker Hewlett Packard, which was down $5.375 to $110.

But the tone was set long before Wednesday's trading began.

Semiconductor maker LSI Logic Corp. and business software company BMC Software Inc. announced after the close of trading Tuesday that second-quarter earnings were below analysts' expectations. LSI Logic was down $8.375 at $32.625, and BMC Software fell $1.562 at $16.938.

A similar dynamic could take hold today.

Internet retailer Amazon.com reported after the close of trading Wednesday that its second quarter losses were bigger than a year ago. Investors promptly knocked the stock down about 8 percent in after-hours trading.

The pattern that has emerged since earnings season began two weeks ago is that investors respond to disappointing results by pummeling the offending stocks, as well as their respective sectors.

In keeping with that trend Wednesday, semiconductor shares were down across the board.

Software companies were among the hardest hit within the broad technology sector. Vignette Corp. was down $4.875 at $38.75, Rambus shares were down $9.50 at $75.50. Internet stocks also suffered.

Still, analysts believe investors may not be overreacting as much as responding to more technical forces.

The harsh response to weaker-than-expected earnings reports a characteristic of the markets in recent sessions is simply investors reversing course from a rally that followed the broad selloff in technology stocks earlier this year, said Richard Hoey, chief economist and chief investment strategist at Dreyfus Corp. in New York.

Despite some high-profile disappointments namely from Microsoft, Intel and Apple the majority of companies are beating Wall Street's expectations.

"I don't think that across the breadth of the numbers we've seen so far that it's been disappointing," Hoey said. "It's really been a mix, a cross-current. But the impact has been mostly negative."

Investors have proven especially fickle in recent days, ready to pounce on any news that might provide a direction. For example, stocks rose Tuesday after AT&T and Texas Instruments beat Wall Street earnings forecasts, giving a boost to the technology sector.

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