Microsoft pulls stock market lower

Dow falls 30 points

Nasdaq tumbles 19

S&P 500 is down 4

October 25, 2003|By Bloomberg News

U.S. stocks dropped after Microsoft Corp., the world's largest company by market value, signed fewer new software contracts, raising concern that profit and sales growth in coming quarters may be disappointing. Benchmark indexes managed to pare wider losses in the last hour of trading.

"Microsoft is definitely the big dog," said Alex Motola, who helps manage $7.5 billion at Thornburg Investment Management Inc. in Santa Fe, N.M. "If they aren't seeing demand, the PC makers and the chipmakers may not be seeing demand."

The Dow Jones industrial average fell 30.67, or 0.3 percent, to 9,582.46. The Nasdaq composite index skidded 19.92, or 1.1 percent, to 1,865.59, for its third straight decline. The Standard & Poor's 500 index shed 4.86, or 0.5 percent, to 1,028.91, with computer-related companies accounting for three quarters of the drop.

Since last Friday, the Dow has lost 1.4 percent, and the S&P 500 has dropped 1 percent. Both had their first weekly declines in four weeks. The Nasdaq has shed 2.4 percent.

Elsewhere on the broad market yesterday, the Russell 2000 index, a benchmark of small-cap stocks, fell 4.06 to 506.43, and the Wilshire 5000 total market index declined 45.70 to 9,983.50.

Four stocks fell for every three that rose on the New York Stock Exchange yesterday. About 1.4 billion shares changed hands, 6.2 percent more than the three-month daily average.

The Sun-Bloomberg index of the top stocks in Maryland fell 0.19 to 241.72.

Profits for the 323 members of the S&P 500 that have reported quarterly results rose 21.8 percent, on average, according to Thomson Financial. That would be the fastest growth since 2000's first quarter. Growth is expected to accelerate to 22.1 percent in the fourth period.

Of the companies that reported, 65 percent surpassed the average estimate, more than the average of 56 percent for the past decade. Earnings from the 225 companies that reported higher earnings rose by 35 percent, on average, while profit fell by 22 percent for the companies that had a decline.

The gains this year by benchmarks may not be sustainable even with those growth rates, according to some investors. The S&P 500 is up 17 percent in 2003; the Dow has gained 15 percent; and the Nasdaq has risen 40 percent.

"A lot of the rise in stocks that we've seen in the last few months was being driven by an expectation that the rates of growth would accelerate," said Ray Rund, an analyst at Shaker Investments Inc. in Cleveland. "We're in a slow economic recovery. It's probably unrealistic to base your evaluation on dramatic growth."

Microsoft, the world's largest software maker, dropped $2.30, or 8 percent, to $26.61, for its biggest percentage decline since September 2001. More than 210 million Microsoft shares changed hands, the most in nearly three years. First-quarter sales increased 6.1 percent to $8.22 billion, the smallest quarterly gain since the period that ended June 2000. The company said salespeople spent time helping clients fix systems vulnerable to computer viruses.

Gateway lost $1.48 to $4.62, for the biggest drop in the S&P 500. The personal-computer maker said it may have a fourth-quarter loss of as much as 15 cents a share, compared with analysts' estimate of 9 cents.

"Competitive PC pricing" contributed to a third-quarter loss of 20 cents a share, excluding some costs, said Chief Financial Officer Roderick Sherwood III.

AT&T, the biggest U.S. long-distance telephone company, rose 74 cents to $19.90. It and BellSouth resumed merger talks this week, The Wall Street Journal reported, citing unidentified people familiar with the situation. AT&T spokesman Dan Lawler and BellSouth spokesman Jeff Battcher declined to comment.

Under any agreement, BellSouth would buy AT&T, and the combined company would carry the AT&T brand name, the paper said. BellSouth lost 9 cents to $25.83.

Shares of Carter Holdings Inc., a 138-year-old baby clothes maker, jumped $5.65 to $24.65 in their first day of trading. The company sold $118.8 million worth of stock in an initial public offering Thursday.

Scientific-Atlanta Inc., the No. 2 U.S. maker of cable-television set-top boxes, dropped $6.35 to $28.68 for the second-biggest decline in the S&P 500. Fiscal first-quarter revenue of $395.6 million was below the $400.7 million average forecast by analysts surveyed by Thomson Financial.

JDS Uniphase Corp. lost 18 cents to $3.60. The world's biggest maker of fiber-optic components said sales fell 24 percent to $147.4 million. The company in July had forecast first-quarter sales of $145 million to $155 million.

Overseas, Japan's Nikkei stock average edged up 0.01 percent; France's CAC-40 rose 0.1 percent; Britain's FTSE 100 slipped 0.03 percent; and Germany's DAX index dropped 1.3 percent.

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