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Markets & Stocks
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Wall St. takes a breather
graphic November 20, 2001: 4:38 p.m. ET

A two-month market advance runs out of steam, surprising no one.
By Staff Writer Jake Ulick
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    NEW YORK (CNN/Money) - U.S. stocks retreated Tuesday amid worries that the market's two-month rally is unsustainable until corporate profits improve.

    The Dow Jones industrial average pulled back, one day after nearing 10,000 for the first time since September. Technology stocks also fell, pulling the Nasdaq composite index from a three-month high.

    "This thing has come pretty far, pretty fast," said Chuck Carlson, CEO of Horizon Investment Services, who added that many stocks have become costly relative to their growth outlook.

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    Shares of farm equipment maker Deere tumbled after the company posted big losses in the latest quarter. Money continued to flee Enron after the energy trader cut its financial outlook.

    And companies such as Cisco Systems and Oracle, with double-digit gains in recent weeks, pulled back.

    Carlson is staying defensive, avoiding technology stocks while buying health care.

    The day's economic data proved mixed; an index designed to forecast the economy's direction made a surprise gain in October, but international trade figures were unexpectedly weak.

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    "We're looking for a pause here in general as people sort out the economy," said Joseph Zock, president of Capital Management Associates, with $1.5 billion under management.

    The Dow Jones industrial average slipped 75.08 points, or 0.7 percent, to 9,901.38, while the Nasdaq composite index declined 53.91, or 2.8 percent, to close at 1,880.51. The Standard & Poor's 500 lost 8.40, or 0.7 percent, to end the day at 1,142.62.

    More stocks fell than rose. On the New York Stock Exchange, declining stocks edged advancing ones 8 to 7 as 1.2 billion shares changed hands. Nasdaq losers topped winners by a nearly 2-to-1 margin as 1.9 billion shares traded.

    In other markets, the dollar declined against the euro and yen. Treasury securities fell, extending last week's big losses.

    An advance stalls

    Even with the session's pullback, the Dow industrials are still up 20.2 percent since Sept. 21, while the Nasdaq holds a 32 percent gain.

    "We're due to have a bit of correction," Jeff Benton, trader at Performance Specialist Group, told CNNfn's Market Call.

    Among losing stocks, Deere (DE: Research, Estimates) tumbled after the farm equipment maker said it lost money in its fiscal fourth quarter following a profit in the year-earlier period.

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    And the problems continued for Enron (ENE: down $2.05 to $7.01, Research, Estimates). In a Securities and Exchange Commission filing, the  company warned it could be forced to pay a $690 million debt by next week and reduced its third-quarter results. Enron shares have fallen more than 90 percent from this year's high above $77.

    Cisco Systems (CSCO: down $0.92 to $19.79, Research, Estimates) and Oracle (ORCL: down $0.31 to $14.56, Research, Estimates) pulled back following weeks of gains.

    With the government cutting interest rates and taxes, and pledging billions of dollars in spending, many expect the economy to grow again in 2002.

    An index designed to forecast the economy's direction seemed to support that outlook, rising 0.3 percent in October, according to the Conference Board, a business research group.

    But tumbling imports and exports hit the U.S. trade deficit, which shrank a record $8.4 billion to $18.7 billion in September as trade ground to a near halt after the Sept. 11 terrorist attacks.

    Apparel merchant Talbots (TLB: Research, Estimates) said its fiscal third-quarter profit rose to 58 cents a share, topping forecasts.

    Staples (SPLS: Research, Estimates), the office supply retailer, said its profit rose to 18 cents a share in the latest quarter, matching forecasts. And discounter Target (TGT: down $1.29 to $36.50, Research, Estimates) said quarterly earnings came in at 25 cents a share, also in line with forecasts.

    Shares of Royal Caribbean Cruises (RCL: Research, Estimates) rallied after announcing a merger with P&O Princess Cruises (POC: up $2.85 to $20.95, Research, Estimates), to create the No. 1 cruise line operator. The companies are betting that the combination will cut costs during a difficult time for the travel business.

    Assessing the gains

    Stock market bears have plenty of reasons for wariness.

    The unemployment rate this month is expected to rise above October's 5.4 percent, a five-year high. And companies getting an early look at business conditions during the final three months of the year are likely to lower financial forecasts.

    Still, Abby Joseph Cohen, who chairs Goldman Sachs' Investment Policy Committee, on Tuesday called the market's two-month run "fully warranted." She predicts more gains ahead, forecasting that the S&P 500 could rise to as high as 1,424 by the end of next year, up 24 percent from Monday's close.

    "The primary assumption is that economic and profit growth will resume by midyear," Cohen wrote.

    Corporate profits in the current quarter are expected to fall 17.3 percent before declining 4.3 percent in the first three months of next year, according to earnings tracker First Call. A rebound isn't expected until 2002's second quarter, when profits are forecast to gain 10.1 percent, followed by a 29.8 percent gain in the third quarter.

    One of the Dow's biggest winners, Exxon Mobil (XOM: up $0.95 to $37.96, Research, Estimates), rose along with the price of oil. But a month of tumbling oil prices have hurt energy stocks this fall.

    The stock market's two-month run also has come amid optimism for a speedy end to the war in Afghanistan, where the Taliban have lost control of most of the country. The United States has placed a $25 million bounty on al Qaeda leader Osama bin Laden, believed to be hiding in Afghanistan.

    Asked about the session's losses, Linda Jay, trader at LaBranche & Co., said she was surprised they weren't worse, given the recent gains.

    "We came in extremely overbought," Jay told Market Call. "Most people are saying, 'Why aren't we down more?' "

    Trading volume is expected to dry up Wednesday, one day before markets close for Thanksgiving. The stock markets shutter early Friday, at 1 p.m. ET. 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.

    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.

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