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Worried Investors Cool Flirtation With Bull Market

Stocks: Indexes slide as upbeat economic news can't overcome fears that a recovery is not on the immediate horizon.

November 22, 2001|From Times Wire Services

Stocks retreated further from bull-market territory Wednesday as traders hesitated to hold big positions going into the Thanksgiving holiday amid worries about the short-term health of the U.S. economy and corporate earnings.

Even a bullish economic report, which showed the number of Americans lining up for first-time unemployment benefits down for a fourth straight week, couldn't overcome investors' fears that a recovery is still some way off.

"The market has been levitating--you could pass a hoop over it and see there's not a lot of fundamental support," said Jeffrey Kleintop, chief investment strategist for PNC Advisors, who said his firm has sold bonds but is holding cash instead of buying stocks. "Jobless claims were down and that's a good sign, but we're still a long way from seeing the bottom in earnings for corporations."

Indeed, analysts don't expect quarterly profits to start growing again until at least the second quarter of 2002, according to market research firm Thomson Financial/First Call.

The Dow Jones industrial average dropped 66.70 points, or 0.7%, to 9,834.68, down for the second consecutive session after clambering into bull-market territory on Monday. A bull market is defined as a gain of at least 20% from a recent low. With Wednesday's loss, the Dow is up 19.4% from its low of Sept. 21.

The broader Standard & Poor's 500 index eased 5.63 points, or 0.5%, to 1,137.03, while the technology-laden Nasdaq composite index fell 5.46 points, or 0.3%, to 1,875.05.

Three shares fell for every two that gained on the New York Stock Exchange, while advancers and decliners were even on the Nasdaq. Trading volume was light on what is typically one of the lowest volume weeks of the year.

The market is closed today for Thanksgiving and will open only a half-day Friday.

The jobless report from the Labor Department said the number of Americans seeking first-time unemployment benefits declined to its lowest level since the Sept. 11 terrorist attacks.

Also, U.S. consumer sentiment bounced up in November as hopes for an economic comeback next year overshadowed jitters about recession and layoffs.

"The latest spate of economic news has all been incrementally positive," said Erik Gustafson, portfolio manager at Stein, Roe & Farnham. "But the statistics are not so overwhelming that they can outdo traders' desires to take some profits."

The S&P 500 has climbed more than 17% since plunging to a three-year low Sept. 21. The Nasdaq composite has rallied almost 32%, bolstered by hopes for improvement in corporate profits and the economy next year, as well as by U.S. progress in the war in Afghanistan.

The gains mean stocks have become expensive relative to earnings, some say. Companies in the S&P 500 are selling at 22.9 times next year's projected earnings, according to First Call. That's the highest ratio since 1991, excluding the high-flying days of 1999 to 2000, the firm said.

Among Wednesday's highlights:

* Amgen, the world's No. 1 biotechnology company, rose $4.07 to $61.98 on an improved profit outlook for next year. Other biotech shares also surged, including Biogen, which gained 87 cents to $56.74, and drug maker Merck, which advanced $1.44 to $65.58.

* Steel shares rose on expectations sales will climb after LTV asked a bankruptcy court for permission to close its mills and put them up for auction. The No. 2 U.S. steel maker, which filed for Chapter 11 protection last December, ran out of cash and failed to win union concessions. Nucor gained $1.08 to $46.68, USX-U.S. Steel Group advanced 60 cents to $16.60 and Worthington Industries added 20 cents to $14.30.

* Enron, the most actively traded stock on the New York Stock Exchange for a second straight session, tumbled $1.98 to $5.01 amid worries about the energy giant's proposed takeover by Dynegy.

* Microsoft fell $1.35 to $64.05 after the world's largest software maker said it will take about $375 million in charges to settle antitrust lawsuits and investment firm Salomon Smith Barney cut its rating on the company's stock, saying shares are too pricey relative to the company's sales and earnings. Other software stocks also fell. Oracle lost 48 cents to $14.08 and VeriSign declined $2.06 to $39.17.

* Analog Devices shed 40 cents to $41.60 after warning that profit for the current quarter will be less than expected.

* Triquint Semiconductor fell $2.33 to 17.22. The communications chip maker said Tuesday that earnings in the current quarter and first quarter of next year will be at the lower end of estimates as customers delay purchases.

Other chip makers rose, sending the Philadelphia semiconductor index up 2% and recouping some of its 9% loss from the last five sessions. Xilinx rose $1.66 to $34.44, Linear Technology gained $1.31 to $38.41 and Applied Materials rose $1.34 to $37.99.

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