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Markets & Stocks
Stocks plunge on bad news
June 14, 2001: 4:39 p.m. ET

Worries about warnings, Honeywell and options prompt widespread selling
By Staff Writer Catherine Tymkiw
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NEW YORK (CNNfn) - A string of negative corporate news sparked a sharp selloff that sent the major U.S. stock indexes to seven-week lows on Thursday.

Honeywell International led the decline among the companies in the Dow Jones industrial average, falling 12.2 percent amid concerns that its proposed $41 billion merger with General Electric might unravel.

The Dow's losses wiped out all of its gains for the year.

The Nasdaq composite index also took a beating for the fifth straight session as negative news dominated the action and the sellers never looked back.

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"It's a lack of conviction to step back in," said Nick Angiletta, global head of trading with Salomon Smith Barney. "Everybody was hoping someone would come in on the buy side and find a new short-term bottom but I think we're setting ourselves up for a tough summer."

The Dow tumbled 181.49 points to 10,690.13. The Nasdaq composite index fell 77.59 points, or more than 3 percent, to 2,044.07. The S&P 500 slid 21.73 to 1,219.87.

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Adding to the volatility was Friday's "triple-witching" options expiration. Triple witching is the quarterly expiration of futures, index options and individual stock options that happen the same day. Many traders opt to close out of these positions ahead of the actual expiration day.

"There's so much uneasiness and so much uncertainty as it relates to holding positions that at any opportunity, people just gather themselves and get back into their shells and wait for the next move," Marty Cunningham, head of Nasdaq trading with Schwab Capital Markets, told CNNfn's Street Sweep.

Negative sentiment has been keeping investors on the sidelines as companies continue to issue warnings. Many see no reason to buy, wondering who will warn next.

Minutes after the market closed, fiber-optics component maker JDS Uniphase (JDSU: down $0.37 to $13.81, Research, Estimates) warned that its sales will be lower than forecast in both the current quarter and the next one as well.

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"This (Thursday) is a day to worry about things," said John Forelli, portfolio manager with Independence Investment LLC. "We got off to a rough start and typical problems continued. Obviously the earnings reports are coming into question and the GE news with the potentially failed merger with Honeywell just cast a pall over the market."

While analysts said the markets could grind lower in the near term, they also saw some reasons for optimism.

"We're going to have awful earnings reports for the second and third-quarter so we have to brace ourselves for that," said Forelli. "To make a sustained rally, we need to see economic news and earnings news start to turn positive and we don't see that happening until the fourth quarter."

Market breadth was negative amid continued light volume. Nasdaq losers beat winners 2,724 to 1,014 as 1.73 billion shares traded. Declining issues on the New York Stock Exchange topped advancing ones 2,150 to 932 as 1.22 billion shares traded.

In other markets, Treasury securities rose. The dollar was stronger versus the euro but weaker against the yen.

GE-Honeywell not too sweet

Investors will be keeping close tabs on the latest developments in the proposed merger of Dow components General Electric (GE: up $1.01 to $48.86, Research, Estimates) and Honeywell International (HON: down $5.16 to $37.10, Research, Estimates) after the companies submitted a detailed proposal to European regulators.

GE said it offered to sell $2.2 billion of Honeywell's aerospace assets, but that it was "not optimistic" the offer would be enough to win approval from European regulators.

"This shows you are never too old to get surprised," GE Chairman Jack Welch said in a statement of the expected rejection. GE did not say if it was going to abandon the merger, which has already been approved by U.S. authorities.

Shares of United Technologies (UTX: down $3.16 to $77.10, Research, Estimates) fell in sympathy with the GE-Honeywell news. According to analysts, while United Technologies could be a viable Honeywell suitor, the prospect of making that type of acquisition could hinder profitability.

Other stocks pressuring the Dow included Boeing (BA: down $1.93 to $63.56, Research, Estimates), American Express (AXP: down $1.75 to $39.77, Research, Estimates), and IBM (IBM: down $0.79 to $115.75, Research, Estimates).

Bad news streams in

Meanwhile, it was another day and another round of bad news for investors to sift through.

"What you're seeing is a pullback mostly on the technology and cyclical side of the economy," said Gruntal's Caron. "This is a normal reaction to some lingering fears about earnings as we head deeper into the confessional season for second-quarter earnings."

Data storage company Quantum (DSS: down $0.16 to $11.05, Research, Estimates) warned Wednesday that its fiscal first-quarter earnings and revenue will come up short of expectations, and that it is withdrawing a proposed initial public offering of its Snap Appliances unit.

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    Foodmaker H.J. Heinz (HNZ: down $0.14 to $42.29, Research, Estimates) reported an 18 percent drop in fiscal fourth-quarter profit excluding one-time items, in line with expectations. But the company best known for its ketchup and sauces also warned that first-quarter earnings will miss expectations.

    Analyst commentary was not much kinder. Fiber-optic manufacturer Corning (GLW: down $1.35 to $16.00, Research, Estimates) was downgraded by Merrill Lynch to "neutral" from "accumulate," citing the expectation of weak sales over the next few quarters.

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    In other corporate news, Dow component International Paper (IP: down $1.47 to $37.00, Research, Estimates) said late Wednesday that it plans to raise $1 billion from a sale of 20-year zero-coupon bonds convertible into stock in one of the largest such sales this year.

    Digesting data

    Wholesale prices rose for the second straight month in the United States in May, according to the Labor Department, but the inflation pressure on the world's largest economy was softer than analysts expected.

    "The market is not going to be applauding this," Prudential Securities market analysts Bryan Piskorowski said. "We already understand the inflation story it's really a growth story. So, the inflation data, while important, is not going to be creating any market-moving shifts." The Producer Price Index rose 0.1 percent last month after April's 0.3 percent increase. Wall Street economists had forecast the PPI would rise 0.3 percent. Excluding often volatile food and energy prices, the so-called core index rose 0.2 percent, matching forecasts. The core PPI also rose 0.2 percent in March. Separately, 428,000 people filed new claims for jobless benefits last week, the department said, a shade above economists' forecasts but down from a revised 440,000 the prior week.

    "We continue to see weakness on the job side and that's got some people concerned," Gruntal's Caron said.

    But he also noted that these reports are lending support to another interest rate cut by the Federal Reserve when its monetary policy making arm meets June 26-27.

    Most market participants anticipate a quarter of a percentage point cut. If that happens, it will be the sixth rate cut since the start of 2001, with rates having been reduced by a total of 2-1/2 percentage points so far this year. graphic

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    Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.