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Drug selling hurts Dow
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August 9, 2000: 4:48 p.m. ET
Eli Lilly provokes drug sell-off; Nasdaq holds gains after Cisco results
By Staff Writer Catherine Tymkiw
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NEW YORK (CNNfn) - The Dow Jones industrial average fell for the first time in eight sessions, slumping after New York Stock Exchange-listed pharmaceutical firm Eli Lilly shares took a beating.
Eli Lilly shares fell following a federal court ruling that would strip the pharmaceutical company of patent protection for its blockbuster antidepressant drug, Prozac, sooner than expected.
The news hit other pharmaceuticals on the Dow, such as Johnson & Johnson and Merck. Concerns about Wal-Mart's future growth prospects also provoked selling.
 The Dow fell 71.06 to 10,905.83 but the blue chip index is still up 138 points this week.
"Basically it's individual stocks outperforming the rest of the market," said Peter Cardillo, director of research at Westfalia Investments. "The feeling that the Fed is not going to raise is infiltrating the whole marketplace and what we're now looking at is future earnings, but we're still in that rotation mode."
Meanwhile, the Nasdaq composite index struggled to hold gains after a better-than-expected earnings report from tech bellwether Cisco Systems.
The Nasdaq gained 4.95 points to 3,853.50. The S&P 500 shed 9.94 to 1,472.87.
 One analyst said the performance on the Nasdaq was not strong enough to inspire confidence for other techs to surge.
"The problem is (Cisco) was the big focus of attention. It's not good when you get positive news and there's (little) response," said Bill Meehan, chief market analyst at Cantor Fitzgerald. "I don't think it bodes terribly well for the tech group."
Market breadth was negative. On the New York Stock Exchange, decliners nudged out advancers 1,425 to 1,417, as more than 1 billion shares changed hands. On the Nasdaq, losers outpaced winners 2,116 to 1,828, as more than 1.5 billion shares were traded.
In currencies, the dollar rose against the euro but slipped versus the yen.
Eli Lilly sparks drug selling
Late Wednesday, Eli Lilly (LLY: Research, Estimates) warned its results would fall short of expectations, after a court ruling stripped the company of patent protection for Prozac, a profitable antidepressant drug, sooner than expected. Eli Lilly shares fell 32-17/32 to 76.
 After the news, pharmaceuticals on the Dow were sold off. Johnson & Johnson (JNJ: Research, Estimates) fell 1-27/32 to 94-13/16 and Merck (MRK: Research, Estimates) lost 1-25/32 to 70-9/16.
In other corporate news, Software.com (SWCM: Research, Estimates) surged 34-11/16 to 142-7/16, and Phone.com (PHCM: Research, Estimates) jumped 13-1/16 to 91-1/8, after the Internet software companies said they will merge in a stock swap valued at $6.8 billion.
Cisco supports techs
As investors gain further confidence that the Federal Reserve is finished with interest rate hikes, analysts said the focus is shifting to corporate performance.
And investors were rewarded after tech bellwether Cisco posted better-than-expected earnings and a 55 percent rise in sales for the company's fiscal year 2000.
Cisco Systems (CSCO: Research, Estimates) jumped 2-5/16 to 67-13/16, after reporting fourth-quarter earnings of 16 cents a share, compared with 10 cents a share for the year-ago quarter and beating estimates by a penny.
Analysts applauded the news. Lehman Brothers raised its 2001 earnings estimate for Cisco to 74 cents a share from 70 cents. Donaldson Lufkin & Jenrette raised its revenue forecast for the company, citing strong growth of 30 percent during the past 10 years.
For two other tech leaders reporting results this week, Applied Materials (AMAT: Research, Estimates) gained 1-9/16 to 72-1/8, and Dell (DELL: Research, Estimates) gained 1/8 to 41-13/16.
Lehman Brothers reiterated a "buy" rating on Applied Materials.
 While investors rewarded the tech sector, other company results didn't generate the same enthusiasm.
Dow component Wal-Mart (WMT: Research, Estimates) fell 4-3/8 to 53-1/4 after posting second-quarter earnings of 36 cents a share, in line with forecasts and up from 28 cents a share a year earlier.
Analysts said the selling was due to disappointment that the retailer was unable to beat expectations, and that in turn signaled some difficulties affecting earnings in the coming quarters.
"The problem there was that they said the next quarter was going to be impacted by changing accounting procedures and their guidance going forward was not particularly upbeat," Meehan said.
Economy still looking good
Analysts remained positive about the economic outlook and said investors were gaining further confidence that the Federal Reserve was finished hiking interest rates after six rate increases since June 1999.
The Fed's monetary policy-making body meets Aug. 22 and investors are hungry for any economic data to support an end to rate hikes.
One economic report Wednesday indicated that the U.S. economy showed signs of slowing in June and July but labor markets were tight, forcing firms to raise pay and to find creative ways to entice workers, according to the Federal Reserve.
The U.S. central bank's latest Beige Book, a summary of coast-to-coast business conditions, reported that easing consumer demand for goods and services appeared to be restraining price increases, according to Reuters News Service.
Interest-rate sensitive financial stocks gained after the report. J.P. Morgan (JPM: Research, Estimates) rose 13/16 to 142, Citigroup (C: Research, Estimates) advanced 3/16 to 72-5/8, and American Express (AXP: Research, Estimates) rose 7/8 to 59-5/8.
"We think, in the short run, psychology drives the market but in the long run, fundamentals drive the market," Alan Skrainka, chief market strategist at Edward Jones, told CNNfn's In The Money. "We see very low inflation and no inflationary pressures. We think, going forward, expectations have come back down in line with fundamentals and we won't have the pressure of Fed rate hikes over the next 12 months." 
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