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U.S. stocks spiral down
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July 26, 2000: 4:53 p.m. ET
Investors sell after LSI revenue disappoints; Dow, Nasdaq sink
By Staff Writer Catherine Tymkiw
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NEW YORK (CNNfn) - Wall Street took a beating Wednesday as lower-than-expected revenue from semiconductor maker LSI Logic sparked a sharp sell-off, wiping out one day of modest gains on both the Dow Jones industrial average and the Nasdaq composite index.
Analysts said the LSI news was the catalyst for the selling but investors were also nervously shifting their attention toward the economy, awaiting clear signs of an economic slowdown, with the U.S. Labor Department reporting the second quarter Employment Cost Index Friday.
 "You've lost your earnings catalyst so we're moving away from the second quarter. With the economy moderating you're looking at earnings estimates that are too high and have to come down," said Richard Cripps, chief market strategist at Legg Mason Wood Walker.
The Nasdaq slid 42.05, more than 1 percent, to 3,987.52. The Dow also lost more than 1 percent, sinking 183.49 to 10,516.48. The S&P 500 fell 22.04 to 1,452.43.
Kevin Bannon, chief investment officer at Bank of New York, told CNNfn's market coverage that the market is likely to tread water until evidence emerges on whether the economy is slowing and inflation remains contained. (327K WAV) (327K AIF)
 "I think (the market) needs the ECI price deflator numbers coming in at acceptable levels, meaning that they don't raise the fear of inflation, it needs the Fed not raising interest rates in August and as we move toward the fall, continuing signs that the economy is moderating and that inflation is low," said Cripps.
Market breadth was negative. On the New York Stock Exchange, decliners outpaced advancers 1,495 to 1,350 as more than 1.1 billion shares changed hands. On the Nasdaq, losers beat winners 2,366 to 1,587 as volume reached more than 1.6 billion shares.
In currencies, the dollar fell against the euro but rose versus the yen.
LSI leads sellers
Analysts said the day's action was led by company-specific news and earnings, but spilled into all sectors as concerns about an economic slowdown returned to unnerve investors.
Late action brought out some bargain hunters but not enough buyers were willing to take a risk ahead of some heady economic data due Thursday.
"People are just looking at the fact there was no other news out there today since the LSI earnings to really affect the market but there was a little bit of bargain hunting," said Barry Hyman, chief market strategist at Ehrenkrantz King Nussbaum. "LSI was a sector story but it was enough, with the nervousness going into tomorrow, to bring some selling onto the market."
LSI Logic (LSI: Research, Estimates) ended at 33-1/16, down 7-7/16 from late trading Tuesday -- but 15-3/4 lower than Tuesday's New York Stock Exchange close.
The company reported second-quarter net income of 29 cents a share, in line with expectations and up from the 10 cents a share earned a year earlier. But LSI's revenue came in lower than expected, which analysts said sparked a broad tech sell-off.
Bear Stearns cut its rating for LSI to "attractive" from "buy" and both Credit Suisse First Boston and Chase H&Q lowered their price targets.
Analysts said most of the positive news about earnings growth has been factored into the share prices, and any hint of negativity would lead to an influx of broad-based selling.
 "It's a pack mentality," said Art Hogan, chief market analyst at Jefferies & Co. "If LSI is showing a revenue slowdown, then we're going to sell everything that is related to semiconductors -- and that's why Intel is down."
Intel (INTC: Research, Estimates) shed 1-7/8 to 139 and Applied Materials (AMAT: Research, Estimates) fell 2-5/8 to 81-7/8. Contributing to the Dow's decline was the pending addition of JDS Uniphase Corp. (JDSU: Research, Estimates) to the S&P 500, which takes effect when trading resumes on Thursday. Market watchers said fund managers were selling S&P stocks in the final minutes of trade in order to buy JDS Uniphase.
After the closing bell, JDS Uniphase, a leading supplier of components used in fiber-optic communications networks, reported a fiscal fourth-quarter profit of 14 cents per share, beating Wall Street's expectations (see full story).
"What we're seeing here is investors becoming increasingly nervous, awaiting the economic data tomorrow (Thursday). Profit warnings and future growth (concerns) are overshadowing the enthusiasm that we saw develop late yesterday -- it's a feeding process," said Peter Cardillo, director of research at Westfalia Investments.
Jittery investors await economic data
Analysts said investors were waiting for further economic data for confirmation that the economy is slowing, which could lead to the end of interest rate hikes by the Federal Reserve.
On Thursday, the Labor Department will report the Employment Cost Index for the second quarter. Economists surveyed by Briefing.com predict the index rose 1 percent in the quarter, down from 1.4 percent in the prior quarter. And Friday, the U.S. Commerce Department will report second-quarter gross domestic product, the broadest measure of goods and services produced. The Briefing.com consensus is for a 3.7 percent annual rate of growth
"I expect (ECI) to be very tame and show now inflation. It's the GDP I'm concerned about. If either one doesn't come in line (with expectations), the market will remain under pressure," said Ehrenkrantz's Hyman. "I'm looking at the GDP number because that's going to give us a direct causal effect to how well the interest rate hikes have slowed the economy down."
While Federal Reserve Chairman Alan Greenspan had little impact on the markets after his semiannual testimony before the House Banking Committee Tuesday, analysts said Greenspan's rhetoric allowed for the possibility of further rate hikes, causing some underlying nervousness.
"Mr. Greenspan certainly left the door open about a possible hike," said Westfalia's Cardillo. "That whole testimony yesterday (Tuesday), while it relieved the market a bit, is being scrutinized today."
Corporate results roll on
In corporate results, eBay (EBAY: Research, Estimates) shed 3-9/16 to 52-11/16 after the online auction site reported sharp increases in earnings and sales, and said its user base has more than doubled over the past year. eBay said it earned 4 cents a diluted share in the second quarter -- a penny better than expectations and unchanged from the year-earlier period.
Nortel Networks (NT: Research, Estimates) lost 3-1/16 to 83-15/16 after the second-largest maker of telecommunications equipment in North America reported second-quarter net income that exceeded analysts' expectations and increased its revenue and earnings outlook for the remainder of this year.
"Selling on the news has been the mantra for second-quarter earnings season. What's more has been the bull's inability to piece together any kind of winning streak," wrote Bryan Piskorowski, market analyst with Prudential Securities, in a note to clients. "With sustainability in question and anxiety abounding about tomorrow's (Thursday's) Employment Cost Index and Friday's second quarter GDP, few players are willing to step up to the plate today."
But not all results were punished.
Offsetting some of the Dow's losses, 3M (MMM: Research, Estimates) rose 1/4 to 88-9/16 after it reported second-quarter earnings of $1.18 a diluted share, up from $1.17 a share in the year-earlier period and edging past analysts' estimates of $1.16 a share.
Another Dow component, DuPont (DD: Research, Estimates), advanced 1-5/16 to 44-15/16 after it reported earnings of 90 cents a share, beating the First Call forecast of 88 cents for the period, as well as the 78 cents a share it earned a year earlier.
Amazon.com, which lost its chief operating officer Tuesday to a business-to-business Internet site, posted a 33-cent-a-share loss for the second quarter after the market close Wednesday that beats analysts' estimates by two cents. The online retailer lost 26 cents a share a year earlier. Revenue rose to $578 million from $314.4 million.
Shares of Amazon (AMZN: Research, Estimates) fell 1-9/16 to 36-1/16 after two analysts lowered their opinions of the stock. 
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