Markets & Stocks
Wounded stocks recover
Late session buying yields comeback, but worries about Iraq and economy could resume focus Thursday.
March 12, 2003: 6:01 PM EST
By Alexandra Twin, CNN/Money Staff Writer

NEW YORK (CNN/Money) - Markets closed higher Wednesday, erasing earlier losses on late day buying after two brutal sessions, but the move was hardly reason to cheer, with stocks still vulnerable to the same Iraq and economic worries that have plagued them for months.

In addition to the continuing concern over Iraq, Thursday also brings weekly claims for unemployment, which are expected to have fallen a little from the previous week. Economists surveyed by expect 418,000 new claims, down from 430,000 the previous week, although still above the key 400,000 level, which tends to signify weakness.

The report will be more closely watched than usual as it falls on the heels of last week's monthly unemployment report, which showed that employers cut a surprisingly large number of jobs from their payrolls.

Thursday also brings a report on retail sales, which are forecast to have fallen 0.5 percent after falling 0.9 percent the previous month. Excluding the volatile auto component of the report, sales are expected to have fallen 0.1 percent after rising 1.3 percent in the previous month. Import and Export prices are also expected.

Thursday also brings a quarterly earnings report from software maker Adobe Systems (ADBE: up $0.86 to $27.49, Research, Estimates), which is expected to have earned 22 cents per share, in line with a year earlier.

Wednesday saw the Dow Jones industrial average (up 28.01 to 7552.07, Charts), the Nasdaq composite (up 7.77 to 1279.24, Charts), and the S&P 500 index (up 3.46 to 804.19, Charts) all closing slightly higher, after having tumbled earlier in the session.

After two steady sessions of selling, investors enjoyed a small technical bounce back in the late afternoon, traders said, largely on interest in technology shares. But the move, while positive, did nothing to alleviate the long-term concerns about the impact on the market of a likely war with Iraq.

Despite the modest gains, the market is still dangerously close to its October lows. Should indexes fall below these benchmarks, they would be trading at their worst levels in more than five years and would be vulnerable to sharper and more rapid declines, traders say.

Volume was improved, but still fairly weak, as has been the case for most of 2003. Market breadth recovered some by the close, but still remained negative. More than 9 stocks fell for every 7 that rose on volume of 1.54 billion shares on the New York Stock Exchange. On the Nasdaq, the loser/winner ratio was 8 to 7 as 1.48 billion shares changed hands.

"We'd gotten a little oversold in the last few days and so we're coming back a little now, with people making some cautious bets on a few individual issues," said Hedi Reynolds, head of Nasdaq trading at Morgan Keegan.

As for which specific stocks led the turnaround, Reynolds pointed to buying interest in chips.

War woes loom

Yet, the overall market trend was still on the downside.

"For the most part, everybody's just sitting on their hands, afraid to move," Reynolds said. "In particular, we're hearing from a lot of people that they are nervous ahead of this weekend. With each day that passes, [war] gets more imminent."

Uncertainty over the beginning, the length, and the repercussions a potential U.S.-led war on Iraq would have on the U.S. economy has been causing a slow decline in stock prices for months now. There was nothing to dispel the uncertainty Wednesday as debate continued among United Nations Security Council members over what the wording of its latest resolution on Iraq should be.

White House officials conceded that they don't have the backing of a Security Council majority for swift action against Iraq, which the United States says has failed to disarm as required by the world body. But the Bush administration is expected to push for a vote this week on a resolution with a deadline for Iraq to meet disarmament demands pushed back a short time from this coming Monday. (For the latest developments, go to

"The general uncertainty about the war -- when it will start, how long it will last -- is slowly and steadily grinding us lower," said Brett Gallagher, head of U.S. equities at Julius Baer, "but inversely it's also propping us up higher than where we should be. Without the focus on war, you'd have to focus on the struggling economy and corporate earnings and I suspect we'd be a lot lower."

The start of a war would initially spark selling, then lead to a brief short-covering rally from hedge funds and others, Gallagher said, but after this period, stocks would turn lower again, focusing on the fundamentals.

Altera (ALTR: up $0.90 to $12.56, Research, Estimates) was a bright spot on the Nasdaq, gaining 7 percent after the chipmaker raised its first-quarter revenue outlook due to strength in some of its new products. The company now expects revenue to grow by 4 percent over the previous quarter, when previously it had forecast revenue that was flat, plus or minus 2 percent. Both Salomon Smith Barney and Morgan Stanley raised their 2003 estimates on the company following the news.

Shares of Broadcom (BRCM: up $0.64 to $14.73, Research, Estimates) also gained 4 percent after Salomon Smith Barney upgraded the stock to "in line" from "underperform," saying that the news flow for the chipmaker is moving from negative to positive. The movement gave buoyancy to other chips.

Additionally, automakers rose. Ford Motor (F: up $0.48 to $7.08, Research, Estimates) stock gained more than 7 percent, and was among the NYSE's most-active issues, after UBS Warburg raised its rating to "neutral" from "reduce" and set its price target at $6.50, saying that near-term worries about Ford's outlook are overdone.

The stock had shed 5 percent Tuesday, hitting an 11-year low, on news that the company's chief operating officer was under internal investigation for allegedly steering business to WPP Group, an advertising agency that handles most of the automaker's accounts. Late Tuesday, Ford reversed a decision by President and Chief Operating Officer Nick Scheele to make WPP Group PLC its only advertising agency.

Dow automaker General Motors (GM: up $0.71 to $30.63, Research, Estimates) added 2 percent on the news.

Airlines, others still in retreat

As was the case Tuesday, stocks of companies whose business stands to suffer in the event of war were among the day's main losers. Shares of AMR (AMR: down $0.18 to $1.41, Research, Estimates), the parent of American Airlines, tumbled nearly 11 percent after Standard & Poor's said it would remove the stock from its index of 500 large market value companies. The removal came after a 76-percent plunge in the stock this year and amid talk that AMR is seeking bankruptcy financing.

AMR will be replaced by real estate trust Apartment Investment & Management (AIV: up $0.89 to $36.04, Research, Estimates), whose stock jumped 2 percent on the news.

Eastman Kodak (EK: down $1.02 to $27.68, Research, Estimates) stock fell 3.5 percent and was the Dow industrials worst decliner due to some of the same concerns hurting airline stocks, said Steven Artuso, an equity analyst at brokerage Pittsburg Research who covers the stock. "It's a leisure play. If we're going to go to war, people are less likely to go to Disney World and take pictures of their family."

In addition, "investors may be expressing fear about how this slowdown in leisure and travel will impact Kodak's second quarter, which is traditionally its biggest," said Peter Ausnit, an imaging research analyst at Deutsche Bank, who covers the stock. Ausnit also said an industry report on film point-of-sale data released Tuesday showed continued weakness in the sector.

Networking services provider Black Box (BBOX: down $12.36 to $26.78, Research, Estimates) warned that weak technology spending will force its fiscal fourth-quarter results well below forecasts. Sector mates Cisco Systems (CSCO: down $0.33 to $12.69, Research, Estimates) and Sun Microsystems (SUNW: down $0.13 to $3.08, Research, Estimates) both lost around 3 percent, while Ciena (CIEN: down $0.32 to $4.48, Research, Estimates) fell 6 percent.

Shares of AOL Time Warner (AOL: down $0.42 to $10.69, Research, Estimates), the parent of CNN/Money, dropped 3 percent after the Washington Post reported that a probe into the company's revenue accounting practices has expanded to include alleged schemes in which AOL and other companies exchanged cash through sham transactions.

Oil stocks were under some pressure following a bearish note out of J.P. Morgan, in which the firm lowered their rating on the integrated oils sector to "neutral" from "overweight," due to the recent run up in the stocks and commodity prices on fears of oil disruption should war break out. Both Exxon Mobil (XOM: down $0.51 to $34.06, Research, Estimates) and Halliburton (HAL: down $0.34 to $19.20, Research, Estimates) shares lost nearly 2 percent.

The price of oil rallied after a government report showed a supply drop last month. Light sweet crude futures gained $1.11 to $37.83 a barrel. Gold lost $4 to $346.60 an ounce in New York.

Stocks also suffered pressure from international markets. European stock markets closed sharply lower, with London's FTSE 100 falling nearly 5 percent, hitting a new seven-year low. Stocks in Asia finished mixed.

Bonds drifted amid the stock market's action. The benchmark 10-year note fell 1/32 of a point in price, keeping its yield steady at 3.58 percent, still just a notch away from its 44-year low of 3.54 percent that was set in October. The dollar was little changed against the euro and yen.  Top of page

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