NEW YORK (CNN/Money) -
U.S. stocks fell Tuesday as investors took some profits following the latest spate of second-quarter results and Alan Greenspan's mixed comments about the health of the economy. But Wednesday could see a stronger open, after Intel reported better-than-expected earnings.
After the close of trade, No. 1 chipmaker Intel (INTC: up $0.08 to $24.10, Research, Estimates) reported second-quarter earnings of 14 cents a share, above estimates and up from a year earlier, due to strength in its computer-related business and in its Asian business, despite the impact of SARS. Looking forward, the company offered a third-quarter sales forecast that is better than analysts were expecting.
However, Intel's chief financial officer also said during a conference call that he does not see signs of a pickup in information technology spending after the two-year downturn.
Nonetheless, the overall news was perceived as positive, sending shares of Intel up more than 3 percent in after-hours trade and setting stocks up for a higher open.
"On the surface, you'll see that the financial momentum delivered by the earnings tonight was more positive than not, and stocks should probably get a little boost off this," said Arnie Berman, technology strategist at SoundView Technology Group.
"The Intel numbers were actually in line with the whisper numbers, so the content is not so surprising, but the context is excellent, when you look at what happened in the quarter," Berman added.
Shares of Motorola (MOT: up $0.28 to $9.78, Research, Estimates) were virtually unchanged after hours after the wireless phone maker reported earnings of a penny a share, better than forecast but down from a year earlier, due to increased competition in the handset market. The better-than-expected results were due largely to cost-cutting measures and not real growth. The company also warned that current-quarter results won't meet estimates.
Earnings due Wednesday include: Ford, EMC, General Dynamics and J.P. Morgan Chase before the bell; AMR during trading; and Advanced Micro Devices, Apple Computer and IBM after the bell.
J.P. Morgan Chase (JPM: down $0.01 to $37.29, Research, Estimates) is forecast to have earned 63 cents per share, up from 58 cents in the same period a year earlier, according to First Call. Ford (F: up $0.33 to $11.64, Research, Estimates) is expected to have earned 19 cents per share, down from 31 cents a year earlier.
While those earnings will likely have an impact on morning trade, IBM (IBM: up $1.02 to $86.44, Research, Estimates) is Wednesday's most highly anticipated report. The company is expected to have earned 98 cents per share, up from 89 cents a year ago. Much like with Intel, what the company has to say about information technology spending will be key for a variety of names in the tech sector.
Also due: reports on consumer prices in June, which are forecast to have risen by 0.2 percent following a flat reading in May. The core CPI, which excludes food and energy prices, is expected to show a rise of 0.1 percent, after rising 0.3 percent in May.
Economic reports are also due on business inventories for May, and industrial production and capacity utilization for June.
The Dow Jones industrial average (down 48.18 to 9128.97, Charts) lost 0.5 percent, the Standard & Poor's 500 (down 3.44 to 1000.42, Charts) index lost 0.3 percent, while the Nasdaq composite (down 1.61 to 1753.21, Charts) closed just fractionally lower.
The Federal Reserve chairman, in his testimony on monetary policy and the health of the economy before the House Financial Services Committee, implied that further interest rate cuts are possible if the economy fails to respond to all the current stimuli thrown its way by the central bank and Washington. But he also said the risk of deflation in the economy was so small that it was unlikely the Fed would resort to unconventional means to generate some inflationary pressure.
"There's a lot of earnings and other news out there today, but I think the market is particularly reacting to Greenspan's testimony," said John Davidson, president and CEO at PartnersRe Asset Management. "The markets are expecting a little more growth because of his comments, but that may not be as much as what they wanted to hear."
Caution in the wake of Greenspan's talk was coupled with profit taking and skittishness over the earnings period and took both stocks and bonds down Tuesday. Declines in Altria Group, Boeing and McDonald's paced the Dow's losses, while Intel was the Nasdaq's most active issue ahead of its earnings report.
Altria Group (MO: down $1.46 to $40.50, Research, Estimates) shares fell 3.5 percent after an Illinois court ruled Monday that a judge didn't have the right to lower the bond the firm's Philip Morris USA unit must post while it appeals a $10.1 billion verdict. Altria's stock was the most actively traded on the NYSE.
Boeing (BA: down $1.14 to $33.44, Research, Estimates) lost 3.3 percent after it said it would take a $1.1 billion charge in the second quarter due to lower demand for its satellite launch services and higher mission costs.
McDonald's (MCD: down $0.84 to $21.08, Research, Estimates) lost almost 4 percent a day after the company said it would meet Wall Street's average estimates of earnings of 37 cents a share in the second quarter, still 2 cents lower than it earned a year earlier.
Earnings in the spotlight
Before trading started Tuesday, Dow component Johnson & Johnson (JNJ: down $1.05 to $52.55, Research, Estimates) said it earned 70 cents per share, a penny better than expected and 9 cents better than a year earlier. The stock lost almost 2 percent.
But Merrill Lynch (MER: up $2.39 to $53.80, Research, Estimates) was a bright spot, with its shares adding about 4.6 percent. The firm echoed Citigroup and Bank of America's positive results Monday by reporting better-than-expected results Tuesday, adding fuel to the argument that the financial sector is shaping up. Merrill Lynch earned $1.05 per share for the quarter, up from 66 cents a year earlier and better than the 72 cents per share analysts surveyed by First Call had expected.
"This has been a pretty good start to the earnings reporting period, with about two-thirds of the companies topping estimates, but I don't think anything's really changed yet," said Davidson. "Greenspan suggested that we may be on the verge of a growth period, which would be significant for earnings, because mostly what you're seeing now are companies showing improvements on cost-cutting, rather than real growth."
In addition, Applied Materials (AMAT: up $0.53 to $18.67, Research, Estimates) managed to buck the negative trend, with its shares gaining more than 2.9 percent in very active Nasdaq trade. Deutsche Bank Securities raised its price target and earnings-per-share forecast for the chip gear maker. In addition, the company's chief financial officer made comments at a semiconductor conference late Monday that suggested the company might want to follow Microsoft's lead and start giving its employees stock instead of stock options.
Market breadth was negative, with two stocks falling on the NYSE for every one that rose, while on the Nasdaq the decline/advance ratio stood at eight to seven. Volume was robust with some 1.50 billion shares changing hands on the New York Stock Exchange and 1.87 billion shares trading on the Nasdaq.
Treasury prices plunged, pushing the 10-year note yield up to 3.97 percent from 3.72 percent late Monday, as its price lost 2 points. Bond investors had been hoping that Greenspan would emphasize the threat of deflation and hint at unconventional weapons to fight it, such as the Fed buying Treasurys outright.
The dollar rallied, especially against the euro, following Greenspan's comments.
NYMEX light sweet crude oil futures rose 6 cents to $31.11 a barrel. COMEX gold tumbled $5.60 to $342.20.