Stocks fell after warnings from network computer supplier Sun Microsystems and telecom gear maker Alcatel worried investors the slumping economy will hurt corporate earnings for a longer period than expected.
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The Nasdaq composite index fell 91.04 points, or 4.18 percent, to end at 2,084.50, according to the latest data, while the Dow Jones industrial average tumbled 166.50 points, or 1.51 percent, to 10,872.64. It was the lowest finish for the major indexes in about two weeks.
"Certainly Sun's earnings warning was much worse than expected and weighing heavily on technology stocks," said Tim Ghriskey, senior portfolio manager at mutual fund company Dreyfus Corp. "There's been a big run-up in tech stocks since April 3 and the sector was really due for a correction."
Year-to-date, the Nasdaq composite is down 15.6 percent, the Dow is up 0.80 percent, and the S&P 500 has dropped 5.5 percent.
Looking to Preannouncement Season
Optimism that the nation's economic slowdown was already reflected in stocks boosted the Nasdaq composite index by 41 percent after the market sank to a 2-1/2-year low in early April. But a stream of profit warnings have since dashed these hopes, traders said.
"People are thinking horrible thoughts," said Kevin Connellan, a trader at Northern Trust, which oversees $390 billion. "They're nervous about the preannouncement season, and nervous that [this corporate profit slump] could go out into the first and second quarter of 2002."
France's Alcatel fell $2.42 to $24.99 on the New York Stock Exchange after warning that the earnings of its telecom business would slip this year. The company, which broke off merger talks with rival Lucent Technologies Inc. on Tuesday, said restructuring charges and write-downs would lead to a loss of $2.57 billion at the division. Lucent, meanwhile, fell 18 cents to $8.14.
Morgan Stanley rang another sour note on Wall Street by downgrading Nortel Networks Corp., JDS Uniphase Corp., Tellabs Inc., and Sycamore Networks Inc.. The Wall Street house blamed weakened demand and said there was no evidence of impending recovery.
Nortel lost $1.27 to $13.35 on the NYSE. JDS fell $2.23 to $16.94 on the Nasdaq. Tellabs sank $3.45 to $33.93. Sycamore skidded $1.24 to $8.99.
While tech shares such as Intel Corp. weighed on the market, so-called "Old Economy" bellwethers weren't far behind. International Paper Co. lost $1.18, or 3 percent, at $37.82.
Bonds rallied as investors yanked money out of stocks.
U.S. Treasury prices edged up, with longer-dated bonds snapping a five-day losing streak as technology shares tumbled.
Benchmark 10-year note rose 3/32 to 96-6/32, yielding 5.51 percent, and 30-year bonds rose 3/32 to 93-9/32, yielding 5.85 percent.
"Equities are trading weak again as investors unwind some of the big shift a couple of months ago out of fixed income into equities," said John Roberts, head of government trading at Barclays Capital.
Sun sank $2.48 to $16.20 after cutting its earnings forecast and warning that sales would be 10 percent or more below estimates due to economic weakness in Europe. The announcement trailed a report on Tuesday by Goldman Sachs warning the company may have trouble meeting estimates, which dragged the tech group lower.