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Wall St. slide led by Sun
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May 30, 2001: 4:36 p.m. ET
A profit warning unnerves investors about future growth for earnings, economy
By Staff Writer Catherine Tymkiw
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NEW YORK (CNNfn) - Worries about corporate profitability returned to Wall Street with a bang Wednesday, led by a warning from server and workstation maker Sun Microsystems, which sparked a broad-based selloff.
The Dow Jones industrial average closed below 11,000 and the Nasdaq closed below 2,100 for the first time since May 15. On that day, the Federal Reserve cut interest rates for the fifth time in five months and the markets practically stood still as investors became nervous about the future of corporate earnings (déjà vu).
Sun's warning prompted concern about how many more companies in the tech sector will give similar negative guidance, conceivably putting an economic and earnings rebound further out of reach.
"The market is jittery," said Peter Coolidge, senior trader with Brean Murray & Co. "The market is worried about what other companies might pre-warn or guide lower and what does that say about assumptions that we are turning this economic slowdown."
The selling wasn't confined to technology stocks as concerns arose about the potentially negative impact that currency fluctuations could have on multinational companies.
The Nasdaq composite index fell 91.04 points, or more than 4 percent, to 2,084.50 while the Dow Jones industrial average tumbled 166.50 points to 10,872.64. The S&P 500 declined 19.85 to 1,248.08.
Investors already had been anticipating a negative quarter and a recovery by the end of 2001. It was that optimism that sparked a stellar two-week rally in which the Dow came within 400 points of setting an all-time high and the Nasdaq gained nearly 300 points within days of the rate cut.
"There's skittishness and markets don't like uncertainty. In the last couple of weeks the market was lulled into a false sense of security that we were turning the economic corner and that the Fed's magic would work in terms of rate cuts," said Coolidge. "Now the market is saying "show me" and we're not off to a good start."
But analysts said the fact that Sun was blaming Europe for its troubles signaled further challenges for all global companies and quickly deflated those gains.
"It's mea culpa season all over again," said Peter Cardillo, director of research with Westfalia Investments. "The market already knows it's going to be a negative quarter for earnings, but what the market is anticipating is further negative news such as Europe having a more negative impact on technology stocks -- that's what's really frightened the market."
Putting further pressure on techs was a rating cut to "neutral" from "outperform" on several optical and telecom equipment makers by Morgan Stanley Dean Witter. Add to the mix a deal gone sour and another warning, this one from telecom equipment maker Alcatel, and techs look tarnished.
"It's fair to say that techs have gone from tepid to terrible," said Alan Ackerman, senior vice president with Fahnestock & Co. "It's (the warnings) a reaffirmation of the fact that it's tough to get a foothold in tech and telecom stocks when visibility remains uncertain."
Analysts said investors will be challenged as they try to steel themselves against the influx of expected bad news and guidance from technology firms.
"More importantly is what is ahead and what the guidance will be in the second-quarter reports," Mark Donohoe, institutional equity trader with U.S. Bancorp Piper Jaffray, told CNNfn's The Money Gang. "The market has discounted a recovery in the fourth quarter so if we don't get any decent guidance going forward, we'll be in for more of a slide."
Market breadth was negative. Declining issues on the Nasdaq topped advancing ones 2,769 to 1,093 as 1.94 billion shares changed hands. New York Stock Exchange losers topped winners 1,979 to 1,086, as 1.15 billion shares traded.
In other markets, Treasury securities edged higher. The dollar was flat against the euro but modestly higher versus the yen.
Techs stung by Sun
Skittish investors were keen to sell technology stocks as negative news flooded the markets. Once the sellers stepped in, they never looked back.
"A number of companies have built up a tremendous amount of debt and, by and large, the tech sector is likely to be replete with more negative earnings (announcements)," Fahnestock's Ackerman said.
Sun Microsystems (SUNW: down $2.42 to $16.25, Research, Estimates) warned late Tuesday that its fiscal fourth-quarter earnings will be below analysts' expectations, primarily due to weakness in European orders.
The supplier of computer products for the Internet and corporate networks previously warned that profit in the quarter ending in June would be flat or slightly lower than the 8 cents a share earned a year ago.
Morgan Stanley Dean Witter cut ratings on several optical and telecom equipment makers to "neutral" from "outperform." The call was enough to send shares of Sycamore Networks (SCMR: down $1.24 to $8.99, Research, Estimates), JDS Uniphase (JDSU: down $2.23 to $16.94, Research, Estimates) and Tellabs (TLAB: down $3.45 to $33.93, Research, Estimates) sagging.
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 BROADER TECH MARKET
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Click below to see how the rest of the tech sector is faring
Techwrap
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Other tech stocks taking a hit included Dell Computer (DELL: down $1.24 to $24.41, Research, Estimates), Cisco Systems (CSCO: down $1.46 to $19.00, Research, Estimates), IBM (IBM: down $2.62 to $112.65, Research, Estimates) and Intel (INTC: down $1.25 to $26.60, Research, Estimates).
"It's time to step out of the batter's box and let the chips fall where they may," said Ackerman. "Overall, the market has had a very big move in a very short period of time, and much of that move came without real earnings justification."
But underlying the nervousness is hope that the economy will inject life into corporate earnings growth longer term.
Investors cautiously rotated money from technology into temporary safer havens such as financial and pharmaceutical stocks, seen as weathering a weak economy better than higher-risk tech issues.
"The market has turned very cautious as people begin to bail out of technology stocks ahead of more confessions," Westfalia's Cardillo said. "With the exception of a few bright spots here and there, it's a down day across the board."
Financial issues American Express (AXP: down $0.14 to $42.27, Research, Estimates) and Wachovia (WB: up $0.62 to $65.87, Research, Estimates) stepped higher.
In pharmaceuticals, Pfizer (PFE: up $0.16 to $43.20, Research, Estimates) and Johnson & Johnson (JNJ: down $0.34 to $97.10, Research, Estimates) made modest advances.
But the action was timid as concerns about a negative global impact on non-tech stocks prompted selling in such issues as Caterpillar (CAT: down $1.74 to $53.40, Research, Estimates), International Paper (IP: down $1.05 to $37.95, Research, Estimates), DuPont (DD: down $1.02 to $45.80, Research, Estimates) and 3M (MMM: down $2.40 to $117.35, Research, Estimates).
"We had a very strong dollar and a very weak euro, so even the value stocks, the multinational companies, suffer from that," Westfalia's Cardillo said. "When you have a strong dollar, multinational firms can't get a grip on their earnings because you have currency fluctuations."
Lucent, Alcatel break off talks
Lucent Technologies (LU: down $0.18 to $8.14, Research, Estimates) and Alcatel (ALA: down $2.42 to $24.99, Research, Estimates) won't be getting together after all. The two telecom equipment makers announced late Tuesday that they had broken off talks on a $23 billion merger, with sources indicating that Lucent was unhappy with terms pointing to a takeover by the French company rather than a merger of equals.
After calling the deal off, Alcatel issued a results warning, blaming expected losses on delayed contracts and a restructuring program that will leave the company focused on networking and optics. Alcatel no longer will make mobile phone handsets.
In deals that appeared to be going through, medical device maker Medtronic (MDT: up $0.05 to $43.00, Research, Estimates) said it agreed to buy MiniMed (MNMD: up $2.77 to $46.77, Research, Estimates) and Medical Research Group -- two companies that make products to manage diabetes -- for a total of $3.7 billion.
Diversified manufacturer Tyco International (TYC: down $0.70 to $56.30, Research, Estimates) agreed to acquire medical equipment maker C.R. Bard (BCR: up $10.09 to $56.09, Research, Estimates) for $3.2 billion in stock. 
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