NEW YORK (CNN/Money) -
U.S. stocks tumbled for the fifth week in a row, falling Friday on a profit warning from Philip Morris, downgrades of General Electric, and big layoffs at SBC Communications.
The Dow Jones industrial average (down 295.67 to 7701.45, Charts) fell 3.7 percent, its third-biggest single-day point drop and percentage drop of the year. For the week, it lost 3.6 percent. The Standard & Poor's 500 index (down 27.58 to 827.37, Charts) fell 3.23 percent; for the week, it lost 2.1 percent. The Nasdaq composite (down 22.45 to 1199.16, Charts) declined 1.84 percent; for the week, it lost 1.8 percent.
"We've been in a very volatile market. With all this negative news, you're getting a lot of nervousness. The coming war with Iraq is getting closer and I don't think the parade of bad earnings news is over," Scott Jacobsen, equity market strategist at Jefferies & Co. told CNNfn's Street Sweep. "This is about as bad as it gets."
Stocks had zig-zagged dramatically throughout the week, on profit warnings, negative brokerage notes, rising oil prices and amplified concerns about the potential for a war with Iraq.
On Monday, profit warnings from tech stocks and fears about military action against Iraq pushed the Nasdaq to a six-year low and the Dow near four-year lows, breaking through the closing lows of July 23rd, a level that was hoped by many to be a sustainable bottom.
Major indexes carved out new multiyear lows on Tuesday on big blue-chip selling and more war concerns. News that the Federal Reserve opted to keep interest rates unchanged had little impact.
Wednesday and Thursday brought strong rallies for the Dow and little movement for the Nasdaq, on a bounce off the previous two sessions of selling, decent economic news and positive forecasts from General Electric and General Motors.
But the rally was short-lived. Negative news on three Dow components dominated trade Friday, knocking stocks lower. Late Thursday, Philip Morris warned that 2002 results will miss estimates, while SBC Communications said it is cutting 11,000 jobs. Early Friday, a pair of brokerages downgraded General Electric.
The Nasdaq composite fought off the negative pressure throughout the morning, before giving in during the afternoon, partly in response to some bearish notes on the chip sector.
Next week brings economic reports on personal income and personal spending, national and regional manufacturing activity, activity in the services sector of the economy and, perhaps most significantly, the September report on unemployment.
In addition, aluminum producer Alcoa (AA: down $0.70 to $19.30, Research, Estimates), a Dow component, is expected to report quarterly results next Friday of 28 cents a share. The company earned 39 cents a year earlier.
Philip Morris warns
Tobacco products maker Philip Morris (MO: down $4.87 to $37.86, Research, Estimates) warned late Thursday that full-year profit will come in lower than expected. For 2002, the company expects 3-percent-to-5 percent growth, rather than the 20 percent analysts had forecast, translating to earnings per share between $4.16 and $4.24 rather than $4.82. The company blamed sluggish sales and higher spending on promotion.
Salomon Smith Barney and Merrill Lynch led the list of brokerages cutting profit estimates on the company and the rest of the tobacco sector following the warning.
Two brokerages issued negative notes on General Electric (GE: down $1.92 to $24.47, Research, Estimates), citing concerns that the recovery of GE's short-cycle businesses will be delayed. Lehman Bros. downgraded the stock to "equal-weight" from "over-weight" and trimmed its fourth-quarter, 2002 and 2003 earnings-per-share estimates. Credit Suisse First Boston downgraded the stock to "neutral" from "outperform" and cut its 2002 and 2003 earnings per share estimates.
Earlier in the week, shares of GE had rallied after it reaffirmed its third-quarter earnings per share forecast of a profit of 41 cents.
Phone service provider SBC Communications (SBC: down $1.75 to $20.15, Research, Estimates) said late Thursday that it is cutting 11,000 jobs, with 9,000 of the cuts expected in the fourth quarter and the remainder due in early 2003.
Shares of 3M (MMM: down $3.20 to $112.55, Research, Estimates), another Dow issue, sold off after the company said it is reorganizing its businesses into seven units from six and that it will reshuffle a number of executives to accommodate the move.
"The Dow's getting hammered by all the bad news this morning," said Tom Schrader, head of listed trading at Legg Mason.
Airlines also were hit hard, dragging the Dow transportation index down 3.6 percent, after Delta Air Lines (DAL: down $2.81 to $8.69, Research, Estimates) warned that it will see a worse-than-expected third quarter loss due to poor September traffic.
Drugmakers declined after Wyeth (WYE: down $7.35 to $31.10, Research, Estimates) warned that its 2002 profits won't meet expectations, due to sales shortfalls for a number of its products.
"We've got the profit warning from Philip Morris and the downgrades of GE, but these things are sort of incremental," said Douglas Altabef, managing director at Matrix Asset Advisors. "We're in a mind set where bad news really resonates and good news is put to the corner."
Techs are mixed, but Nasdaq still falls
Techs gave up a midday attempt at a rally and the Nasdaq headed lower during the afternoon as a result, with networking and storage software leading the erosion.
Goldman Sachs trimmed estimates on a number of communication chipmakers, including Broadcom (BRCM: down $0.91 to $10.95, Research, Estimates) and PMC-Sierra (PMCS: down $0.19 to $3.95, Research, Estimates), citing prolonged weakness in telecom and some softness in personal computers, cable and enterprise. The chip sector resisted the pressure for most of the morning, before caving in under the pressure.
Wachovia Securities started its coverage of chip leader Intel (INTC: down $0.53 to $14.62, Research, Estimates). with a "hold" rating, saying that while the company is a clear leader, a decelerating growth rate could cap upside potential in the shares.
In the day's economic news, the Commerce Department said second-quarter gross domestic product was revised up to 1.3 percent annual growth, when economists surveyed by Briefing.com were expecting it to remain unchanged at a 1.1 percent gain.
The final consumer sentiment report from the University of Michigan for September was revised down to 86.1 from the initially reported 86.2; economists expected it to be revised down to 86.0. Sentiment stood at 87.6 in August, and has declined for four straight months.
Treasury prices rallied, sending the 10-year note yield down to 3.66 percent from 3.81 percent late Thursday. Treasury prices and yields move in opposite directions. The dollar gained against the yen but was little changed versus the euro.
Light crude oil futures rose 13 cents to $30.54 a barrel, while gold was lower.
Market breadth was negative. On the New York Stock Exchange, decliners beat advancers by more than 11-to-5 as 1.48 billion shares changed hands. On the Nasdaq, losers beat winners 3-to-2 as 1.43 billion shares traded.