NEW YORK (CNNfn) - U.S. stocks retreated Monday as concerns about corporate profitability prompted investors to take cash off the table after two chip equipment makers warned their quarterly financial results will fall short of expectations.
"You have a bit of inertia," Bryan Piskorowski, market analyst with Prudential Securities, told CNNfn's Street Sweep. "You have a certain mentality that we have a deer in the headlights with the near-term earnings uncertainty versus the long-term prospects for economic recovery. So you have a market that's in a tug-of-war."
Selling momentum tapered off as the session wound down, and analysts said the activity was underpinned by a lack of conviction. Essentially, with no positive news there was no compelling reason to place significant bets.
"This week they're worried more about the earnings warnings," John Davidson, chief investment officer with Circle Trust, told CNNfn's Street Sweep. "The lack of the upward drive has allowed the stocks to drift lower."
The Nasdaq composite index fell 44.32 points to 2,170.78, while the Dow Jones industrial average slid 54.91 points to 10,922.09. The S&P 500 index dropped 10.57 to 1,254.39.
The negative tone was a continuation from Friday's selloff, when Juniper Networks warned that its profit for the current quarter would come in as much as 66 percent below forecasts.
"The Juniper (Networks) earnings warning (on Friday) along with some downgrades today (Monday) are basically navigating the markets lower," said Peter Cardillo, director of research with Westfalia Investments. "It's like sailing on a boat that's heading nowhere."
And with conflicting economic news, investors likely will play it close to the vest until further reports show which direction the market is headed with regard to an economic recovery.
But investors did have some economic commentary to ponder from Federal Reserve Bank of Dallas President Robert McTeer, who said the slumping U.S. economy probably has hit bottom but that the jobless rate likely will rise in the months ahead.
Market breadth was negative and volume was tepid, which analysts said was another sign that investors were willing to wait out the bad news.
"Volume is not convincing because many investors are not convinced that they should step back into this market and there is very little catalyst to step back in," Nick Angiletta, head of retail sales trading with Salomon Smith Barney, told CNNfn's The Money Gang.
Nasdaq losers beat winners 2,329 to 1,465 as 1.39 billion shares traded – it's fourth-lightest trading day this year. Declining issues on the New York Stock Exchange topped advancing ones 1,811 to 1,241 as 855 million shares traded.
In other markets, Treasury securities rose. The dollar gained against the yen and the euro.
Warnings and downgrades weigh on stocks
A dearth of significant corporate guidance or economic news prompted investors to keep cash on the sidelines. Many market participants also opted to stay out of the action ahead of a slew of economic reports, due later in the week.
"We're still three-to-four weeks away from second-quarter earnings reports and there's nothing really to light a candle under stocks," said Alan Ackerman, senior vice president with Fahnestock & Co.
Still, some corporate guidance did surface, but it was not good news and was not greeted warmly by investors.
DuPont Photomasks (DPMI: down $6.03 to $45.97, Research, Estimates) warned that its fiscal fourth-quarter results would fall well short of Wall Street forecasts, and the maker of devices used to produce semiconductors said it would cut about 6 percent of its work force amid continuing weakness in the chip industry.
Chip equipment maker Varian Semiconductor (VSEA: down $3.22 to $39.25, Research, Estimates) warned that its revenue would drop 30-to-35 percent, worse than its previously forecast 25 percent decrease. The company also said it has cut its staff by 20 percent from the start of the year and plans a two-week plant shutdown in July as part of a cost-cutting measure.
Juniper Networks (JNPR: down $2.69 to $35.33, Research, Estimates) tumbled after Robertson Stephens reduced its estimates following Juniper's earnings warning last week. The analysts cut 2001 estimates to 50 cents a share from 93 cents and 2002 to 38 cents a share from 91 cents.
UBS Warburg cut its price target for Nortel Networks (NT: down $0.49 to $12.04, Research, Estimates) to $15 from $18. In addition, two suppliers of Nortel's radio frequency products – Spectrian (SPCT: down $1.47 to $14.56, Research, Estimates) and Powerwave (PWAV: up $0.10 to $12.10, Research, Estimates) – warned their financial results will fall short of expectations.
Lucent Technologies (LU: down $0.36 to $8.04, Research, Estimates) sagged after UBS Warburg said it sees maximum bids for the telecom equipment maker's fiber business coming in around $4 billion, compared with the firm's original estimate of $4 billion-to-$7 billion, citing the state of the stock market and expected weakness in the fiber market going forward.
In tech deals, business management software maker Peregrine Systems (PRGN: down $3.30 to $25.51, Research, Estimates) has agreed to buy rival Remedy (RMDY: up $12.18 to $30.52, Research, Estimates) for about $1.1 billion in stock and cash in a move to expand its software business to serve both small and medium-sized businesses.
In the broader tech sector, shares of Hewlett-Packard (HWP: down $0.74 to $27.80, Research, Estimates), Microsoft (MSFT: down $1.07 to $72.12, Research, Estimates), Applied Materials (AMAT: down $1.65 to $53.62, Research, Estimates) and Qualcomm (QCOM: down $1.46 to $59.78, Research, Estimates) slumped.
Foundry Networks (FDRY: down $1.66 to $17.83, Research, Estimates) slipped after Robertson Stephens maintained its "market perform" rating and set a $21.50 price target. The firm also increased second-quarter revenue estimates to $80 million from $65 million and earnings per share to 4 cents from breakeven.
Yet, it wasn't just technology stocks taking it on the chin. Pharmaceutical and industrial stocks added further pressure on the Dow. Johnson & Johnson (JNJ: down $0.64 to $101.37, Research, Estimates), Merck (MRK: down $1.97 to $72.25, Research, Estimates), Honeywell (HON: down $1.26 to $45.25, Research, Estimates) and Caterpillar (CAT: down $0.97 to $53.36, Research, Estimates) traded lower.
Some attributed the weakness in these stocks to news that Japan's economy is stagnating, which could signal further economic trouble for companies doing business on a global basis.
"Japan might have started this thing (selling) off," Linda Jay, NYSE floor specialist with LeBranche & Co., told CNNfn's Market Call. "Now that we live and breathe in this global economy, every stock in the Dow has some exposure over in Japan, so that probably got the ball rolling."
Tokyo's Nikkei index led Asian markets lower Monday.
Warnaco, GM, Ford and AOL in the news
Warnaco Group (WAC: unchanged at $0.39, Research, Estimates) filed for Chapter 11 bankruptcy protection as the apparel maker reorganizes in an effort to remain a viable company. Warnaco blamed the slowing economy, a softening retail environment, increasing competition, and growing debt for its troubles.
But General Motors (GM: up $0.04 to $59.14, Research, Estimates) may be getting some good news. A new report indicates the world's No. 1 automaker has virtually closed the productivity gap with rival Ford (F: up $0.83 to $24.83, Research, Estimates), the Wall Street Journal reported Monday, quoting people familiar with the situation.
Separately, Salomon Smith Barney upgraded Ford stock to "buy" from "neutral" and raised its price target from $28 to $36.
Media conglomerate AOL Time Warner (AOL: up $0.74 to $51.79, Research, Estimates) and Chinese computer maker Legend Holdings announced Monday a $200 million joint venture to provide consumer Internet service in China. Legend will control 51 percent of the venture. AOL is the parent of CNNfn. 
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