Dow Ends Down 130; Nasdaq Sheds 63

Thursday, June 29th 2000, 12:00 am
By: News On 6

NEW YORK (AP) — Stocks fell Thursday as investors worried that rising interest rates have begun cutting into corporate earnings and will continue to pinch profits if the Federal Reserve boosts rates again at its August meeting.

A series of earnings warnings toppled a market already struggling to digest the Fed's decision on Wednesday to leave interest rates unchanged but warn about risks of inflation. Selling was modest, but broad-based.

``The market has been fixated on the Fed, and it will continue to be,'' said Brittain Ellis Prigge, vice president at Balentine & Co. in Atlanta.

According to preliminary calculations, the Dow Jones industrial average fell 129.75 to close at 10,398.04.

Broader stock indicators also dropped. The Standard & Poor's 500 index was down 12.37 at 1,442.45, and the Nasdaq composite index was down 62.71 at 3,877.63.

Scattered earnings disappointments dragged the market lower.

Unisys plunged $8.875 to $14.75 after warning that its second-quarter revenue and earnings will miss analysts' expectations. The company said clients have deferred several large technology contracts.

In the old economy, Goodyear fell $2.125 to $21.25 after saying it expects to report earnings of about 37 cents a share for the quarter. Analysts had been expecting earnings of 58 cents. Analysts said the shortfall comes from Goodyear's unsuccessful attempt to raise prices to offset the rising cost of raw materials.

The warnings sent a chill through a market that was already hurt by the Fed's announcement on Wednesday. The central bank's warning on inflation led many analysts to expect that the Fed will raise rates at its August meeting.

``I don't think the game is over. This is more like the seventh inning stretch,'' said John Forelli, senior vice president at Independence Investment Associates in Boston. ``The Fed is waiting to see whether economic activity slows substantially. I don't think any investors can rule out action in August.''

In the meantime, analysts said, the market may find excuses to remain stalled in a narrow range. Stocks had advanced modestly in the days leading up to the meeting, leading investors to take some profits Thursday. Also, traders said investors were unloading some stocks ahead of the Independence Day weekend.

Financial stocks, which are highly sensitive to rising interest rates, pulled the Dow lower. J.P. Morgan fell $2.813 to $113.938 and Citigroup fell 31.25 cents to $62.938.

Investors were also taking profits from the technology stocks that have risen in recent sessions. LSI Logic fell $5.688 to $53.313 and Cisco fell $1.938 to $61.625.

On the New York Stock Exchange, Eli Lilly soared $15.75 to $102.875 after announcing that an independent board gave a favorable review to its drug Zovant, used to treat sepsis. The experimental drug, which still needs approval from the Food and Drug Administration, would be the first drug approved for the treatment of sepsis, a disease in which the body's systems fail due to infection.

Consumer goods stocks made the most convincing gains, rising on the hope that whether the economy grows or falters, products like toothpaste and soap will continue to drive sales. Kimberly Clark rose $1.938 to $56 and Johnson & Johnson rose 93.75 cents to $98.938.

The sector-to-sector rotation that has characterized the market in the past few weeks is likely to persist until the Fed's next meeting, analysts said, because it still isn't clear how successful the Fed's six rate increases in the past year have been in slowing the economy.

``It takes six to nine months for rate hikes to really be felt in the economy,'' Prigge said. ``I think we will ultimately see that the Fed has been successful, but we might be in a holding pattern for quite some time.''

Thursday morning, another sign of robust growth rattled some investors. The Commerce Department said the country's total output of goods and services, called the gross domestic product, rose at an annual rate of 5.5 percent during the January-March quarter.

What's more, a key inflation measure took its biggest leap since late 1994, largely reflecting surging energy prices.

Declining issues outnumbered advancers by a 10-to-9 margin on the New York Stock Exchange, where volume was running slightly ahead of Wednesday's pace.

The Russell 2000 index of smaller companies fell 6.66 to 514.33.