Markets Discouraged by Earnings, Greenspan

N E W  Y O R K, July 18, 2001 -- Stocks ended lower today, but a late afternoon comeback limited losses after Federal Reserve Chairman Alan Greenspan offered too fewsoothing words about America's sputtering economy, noting incongressional testimony more weakness cannot be ruled out.

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Greenspan said in testimony before Congress there are signsthe U.S. economy is escaping its year-long slump, but cautionedthat it is not out of the woods yet. His comments unnervedinvestors who were already reeling from bleak earnings resultsand forecasts.

Computer chip giant Intel and softwareprovider Veritas Software both unleashed pessimisticfuture estimates, while financial services behemoth AmericanExpress slammed the Street with news of massivelayoffs and charges against earnings.

"Days like this remind us that there's blood in the streetswhen it comes to corporate profits," said David Sowerby, marketstrategist for Loomis Sayles in Detroit. "We're in a profitrecession, and it's not going to end. It's got another quarter,maybe two quarters, of life left."

After the closing bell, computer heavyweight InternationalBusiness Machines offered a ray of hope when itmet analysts' estimates with a higher quarterly profit. IBMshares ended at $104.28, down $4.25.

The tech-laced Nasdaq Composite Index finished witha loss of 51.15 points, or 2.47 percent, at 2,016.17, afterdiving more than 3 percent at mid-afternoon.

The blue-chip Dow Jones industrial average fell36.56 points, or 0.34 percent, to 10,569.83 — marking asubstantial recovery from its earlier loss of 122 points.

The broader Standard & Poor's 500 Index shed 6.73points, or 0.55 percent, to 1,207.71, after falling more than15 points during the session.

The Greenspan Effect

The U.S. economy faces a range of hurdles that couldimperil a hoped-for rebound and force the Fed to cut ratesfurther, Greenspan said.

But he told the House FinancialServices Committee six rate cuts so far this year, plus a taxcut and cheaper energy, should assist the economy as it triesto pull out of its slump later this year.

He added that there are signs the slowdown is beginning to bottom out, but it was still tentative and "clearly the risks … are toward economic weakness."

Corporate News Weighs Markets Down

The most active stock on the New York Stock Exchange wasAOL Time Warner, off a hefty $4.90 at $44.55. Theworld's largest Internet and media company said quarterlyearnings, excluding items, rose as it cut costs. But concernsabout revenue growth sparked the drop in its stock.

Just a day ago, investors had looked past dreary quarterlyearnings reports and focused on upbeat forecasts instead assome companies' weak results still met or beat estimates.

But the party was spoiled by a host of companies,particularly from the high-tech sector, that added to thechorus of corporate voices chanting that the slowing economicenvironment has hurt their results. Among them was EMC, the No. 1 data-storage systems maker.

EMC, down $2.34 at $18.05, said its profits could take aneven bigger hit in the current quarter than the secondquarter's 75 percent drop. EMC also said the speed and depth ofdeterioration in the global economy has hurt its ability tomake a near-term forecast. EMC shares hit a 52-week low of$18.05.

The news rippled through the data networking community,hitting industry peers such as Brocade Communications,which fell $6.96 to $30.14.

Techs Take a Tumble

Intel fell $1.01 to $28.89 after it reported profits sank76 percent as the world's largest semiconductor maker was hitby a slowing economy, slack PC sales and a stinging price war.The Philadelphia Stock Exchange's semicondutor index fell 3.35 percent.

Apple Computer closed down $4.31 at $20.79, afterthe computer maker raised the possibility that revenue for thesecond half of its fiscal year could fall short of its earlierforecast.

Veritas met the Street's earnings estimate, but cut itsannual growth target amid a prolonged slump in U.S. corporatetechnology spending. Investors were shocked by the warning,which came just 12 days after company executives reiteratedprevious guidance. Shares sank a whopping $13.34 to $37.08 andsector companies were hit, including Siebel Systems ,down $5.91 at $37.64.

"You're waiting for the turn for so long and want tobelieve it's coming, and just when you start to get someevidence it is, you get contrary evidence — it wears on thepsychology and the psyche of investors," said Charles White,president of investment firm Avatar Associates.

About half of the Dow's 30 components will issue theirresults this week. Among them was Boeing Co. , whichadded 83 cents to end at $57.13. The aerospace giant saidprofits before extraordinary items rose 27 percent on steadyimprovement in its core businesses. Boeing raised its forecastfor revenues in 2001 by $1 billion.

AMR, whose American Airlines is the world'slargest airline, reported a loss, blaming flagging businesstravel and high fuel costs. Shares fell 96 cents to $35.44.

So far, more than a quarter of the companies in the S&P 500have reported earnings. Of those 144 companies, 63 percent havecome in above expectations, 25 percent have met forecasts, and12 percent have disappointed, according to ThomsonFinancial/First Call.

Tuesday’s Highlights

On Tuesday, the blue-chip Dow Jones industrial average jumped 134.27 points, or 1.28 percent, to 10,606.39, to close at its highest level in nearly a month. About half of the Dow's 30 components are set to report earnings this week.

The broad Standard & Poor's 500 Index climbed 11.99 points, or 1 percent, to 1,214.44. The tech-laced Nasdaq Composite Index rose 38.20 points, or 1.88 percent, to 2,067.32, snapping back after Monday's hefty 2.67 percentslide.

The Associated Press and Reuters contributed to this report