Stocks Fall on Weak Semiconductor Industry
NEW YORK – Stocks edged lower Wednesday as weakness in the semiconductor industry and a mixed bag of earnings news offset cheer over Microsoft Corp.’s decision to share upwards of $75 billion of its cash reserves with investors.
Microsoft’s plan for a stock buyback and an enormous dividend whet buyers’ appetites a day ahead of the software bellwether’s earnings announcement. But trading was subdued by anxiety over earnings reports. Even Federal Reserve Chairman Alan Greenspan’s mostly bullish testimony before a Congressional committee was not enough to keep stocks in positive range.
In afternoon trading, the Dow Jones industrial average was essentially flat, up just 0.22 at 10,149.29.
The broader gauges were lower. The tech-heavy Nasdaq composite index sank 24.23, or 1.3 percent, to 1,892.84. The Standard & Poor’s 500 index fell 4.49, or 0.4 percent, to 1,104.18.
Although most companies have matched or beaten earnings expectations in recent weeks, investors have been reluctant to make commitments because of less-than-stellar outlooks. Analysts say slowing profits, lower consumer spending and uncertainty about inflation, terrorism and the presidential election could combine for a lackluster third quarter.
Many had hoped the Fed chairman would give the market more direction in his remarks before the House and Senate this week. He offered an upbeat assessment of the economy, but his repeated promise that the central bank would raise rates as aggressively as necessary gave investors some pause.
Underscoring the sensitivity to outlooks, a drop in orders at Texas Instruments Inc. – which matched estimates in earnings reported after the close Tuesday – raised anxiety about chip stocks, and the Philadelphia Semiconductor Index sank 2.5 percent. Because semiconductors are used in virtually all tech products, any weakness in that industry is seen as spelling trouble for the other parts of the sector.
“It’s really the tale of two tapes today,” said Russ Koesterich, U.S. equity strategist with State Street Corp. in Boston. “Microsoft looks good … but you’re getting more and more anecdotal evidence that you might have seen a peak in the semi cycle.”
Texas Instruments, which makes chips for more than half the world’s mobile phones, was down down $1.07, or 4.9 percent, at $20.69, even though it tripled its profits over the same period a year ago and reported rising demand for its products.
Meanwhile, Microsoft gained 70 cents, or 2.5 percent, to $29.02, after announcing its plan to disburse up to $75 billion to shareholders through dividends and a stock buyback. With its legal troubles largely resolved, Microsoft executives said they finally felt free to spend part of its gigantic stockpile.
Strength among some old economy names, notably in the banking industry, added to positive momentum on the Dow early in the day, but other companies posted declines.
Among the Dow’s few advancers, J.P. Morgan Chase & Co. gained 72 cents to $37.12, despite a second-quarter loss on litigation costs linked to its role advising both Enron Corp. and Worldcom Inc. before the companies went bankrupt. Excluding those charges and another related to its recent merger with Bank One, J.P. Morgan Chase beat Wall Street’s estimates by 2 cents a share.
Decliners included Colgate-Palmolive Co., which slipped $1.20 to $55.42 after the consumer-products company posted unexpectedly weak results in North America. And ImClone Systems Inc. tumbled 19 percent, or $15.23, to $65.50, after sales of its cancer drug Erbitux failed to meet expecations.
Declining issues outnumbered advancers about 3 to 2 on the New York Stock Exchange. Volume came to 862.7 million shares, compared to 715.23 million shares at the same point Tuesday.
The Russell 2000 index, which tracks smaller company stocks, was down 10.40, or 1.8 percent, at 553.79.
Overseas, Japan’s Nikkei stock average finished 1.6 percent higher Wednesday. In Europe, France’s CAC-40 closed up 0.8 percent, Britain’s FTSE 100 added 0.9 percent and Germany’s DAX index advanced 1 percent.
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