Recession Not So Scary at First Bite
The gross domestic product shrank at an annual rate of 0.4% in the three months ended in September as terrorist attacks exacerbated the economy's decline. Traders had feared a much steeper drop, and bid up tech stocks on the heels of two gloom-spreading sell-offs. But the Dow Jones Industrial Average eventually slid into the red for good, and the Nasdaq Composite Index gave back more than half of its earlier gains.
The Dow lost 46.84 points to 9075.14, while the Nasdaq gained 22.79 to 1690.20. The S&P 500 index lost one-hundredth of a point to 1059.78. Chip makers, retailers and home builders led the way, while insurance, energy and health-care stocks lagged.
The GDP number is still subject to two separate revisions, and will likely be overshadowed by week's end by more current ??d weaker ??nufacturing and employment data.
"If the market wanted to take a negative view, we could make the assumption the GDP revision is going to be lower, and yet the market is chugging along here. We're climbing that wall of worry," said Barry Berman, head trader at Robert W. Baird & Co. "We know that there are layoffs, yet the market is going higher. The market is looking past these things with the idea that with the lower interest rates and the government stimulus, people will keep spending money."
With nine cuts of the short-term federal-funds rate failing to halt the slide so far this year, the government tried to give the economy a less orthodox shot the arm Wednesday by suspending offerings of new 30-year bonds.
Treasurys rallied, sending yields down and holding out the promise of lower interest rates on everything from mortgages to car loans. The yield on the 10-year note dropped to 4.25% from 4.41% on Tuesday, while the 30-year bond yielded 4.88%, down sharply from 5.21% a day earlier.
President Bush tried to revive an economic-stimulus package, urging congressional leaders to find compromise without unduly raising spending. The measure has stalled, with House Republicans' push for wide-ranging corporate tax breaks running into fierce resistance in a Senate more interested in aiding unemployed workers.
Kodak was the Dow weakling for a second straight day, dropping 8% after Salomon Smith Barney highlighted a steep drop in film sales since the terrorist attacks. On Tuesday, the stock was hit by reports that top retailer Wal-Mart (WMT) is planning to sell Agfa film under its own label. The stock is down about 18% this week and more than 40% since Sept.10, making it a runner-up for the Enron (ENE) downhill-racer honors.
The latter managed to halt a fall from grace that has decimated its shares over the last two weeks as investors lost confidence in the energy trader's finances and management. Enron stock rebounded 25% from an eight-year low.
Meanwhile, the bosses of technology giants are trying hard to cheer up their long-suffering shareholders. Shares of Sun Microsystems (SUNW) advanced 6% after the server maker said sales were running above the previous quarter's pace.
Chip leader Intel (INTC) obliged as well, using a Webcast for analysts to tout its ongoing transition to the newer, faster Pentium 4 class of PC processors. The company didn't embellish its forecast calling for sales to, at best, stay flat during the next quarter. But it pledged to use its edge in technology to reverse recent market-share gains by rival Advanced Micro Devices (AMD). Intel's stock rose 4% to lead the Dow.
Big wireless maker Motorola (MOT) is already growing its market share, an executive boasted to Reuters. Its piece of the global handset market grew to 17% or 18% in the third quarter, according to Corporate Vice President Geoffrey Frost, up from an estimated 14.8% in the second quarter. Frost credited "compelling and exciting products," though top rival Nokia (NOK) has attributed its slipping share to "panic pricing" by competitors. Motorola shares gained 1%.
Elsewhere, Dell Computer (DELL) founder Michael Dell offered reassurances to an analyst, a day after Merrill Lynch cut estimates for the top PC seller. Kimberly Alexy of Prudential Securities emerged from a dinner meeting with Dell to write that the company's short-term financial targets aren't at risk. The stock rose 3%.
Alcatel's (ALA) forecasts are a much dicier proposition. The big French telecom-equipment maker posted a quarterly loss several times wider than analysts' estimates and warned that its immediate prospects are scarcely brighter. But the stock rose 9% as investors focused on a drop in inventory and the company's pledge to cut another 10,000 European jobs.
Adobe Systems (ADBE) didn't get off so easy. The publishing-software maker's shares lost 8% after it said fourth-quarter earnings could fall as much as six cents short of the consensus estimate of 26 cents a share on lower-than-expected revenues. The company will cut 5% of its work force.
Broadband supplier Qwest (Q), the purveyor of those ads promising to deliver every movie ever made to every shady motel room, fared even worse after turning expectations for a quarterly profit of three cents a share into eight cents a share in red ink. Its shares slumped 19%.
The weather is somewhat sunnier outside the heavily overcast tech sector. West Coast HMO PacifiCare Health Systems (PHSY) reported third-quarter earnings of 50 cents a share, 16 cents above Wall Street's consensus and more than three times the year-earlier total. The company, which has worked to spread the risk of rising health costs to the hospitals and doctors who treat its patients, also affirmed its full-year forecast, which is significantly above the consensus estimate. The stock rose 7% in a reversal of a sell-off that preceded the earnings report.
Some companies are even defying the current fashion by raising expectations. Clothing marketer Tommy Hilfiger (TOM) laid claim to the rags-to-riches story by beating the Street by three cents with second-quarter earnings of 50 cents a share, and raising its forecast for the rest of the year. Its shares strutted 9% higher.
And top auto-parts retailer AutoZone (AZO) predicted it too would top estimates, reporting that same-store sales are running 7% to 8% above the year-earlier levels so far this quarter. The stock gained 7%.
The daily disaster involved online credit-card issuer NextCard (NXCD), which sank 84% amid a sea of bad loans and red ink.
(Reporter Christopher O'Connor contributed to this story.
