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Markets & Stocks
Rough week on Wall St.
June 15, 2001: 5:03 p.m. ET

Nasdaq suffers worst week of year, stocks drop to seven-week low
By Staff Writer Jake Ulick
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NEW YORK (CNNfn) - New worries about weakening corporate profits sent U.S. stocks lower Friday, capping off a losing week that pushed the major indexes to their worst levels since April.

JDS Uniphase, Nortel Networks and McDonald's all announced disappointments, offsetting optimism over the Federal Reserve's next meeting, when some economists now another expect a big interest rate cut.

The Nasdaq composite index declined for a sixth day, losing more than 8.4 percent in its steepest weekly drop of the year. Blue chips held up better. The Dow Jones industrial average fell 3.2 percent over the last five sessions. And the S&P 500, the broadest of the three indexes, slipped back into bear market territory.

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But it could have been worse. Stocks finished off their worst levels of the day as investors took some comfort from economic data showing weakening consumer confidence and industrial activity.

The softness, coupled with a report signaling limited inflation, prompted some economists to predict that the Fed in 12 days will make another big cut in borrowing costs, its sixth reduction of the year.

"There's certainly a higher chance that they will go half a percentage point this time," Mario DeRose, fixed-income strategist at Edward Jones, told CNNfn's The Money Gang. "And a quarter-percentage point is a done deal."

After being down more than 51 points, the Nasdaq finished lower by 15.65 points, or less than 1 percent, at 2,028.42. That's its lowest close since April 24.

The Dow industrials lost 66.49, or less than 1 percent, to 10,623.64, recouping just more than half of a 123.52-point decline. It was also the Dow's worst finish since April 24.

The S&P 500 declined 5.51 to 1,214.36.

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More stocks fell than rose. On the New York Stock Exchange, declining issues topped advancing ones 1,598 to 1,446 as 1.5 billion shares changed hands. Nasdaq losers beat winners 2,142 to 1,629 as 2 billion shares traded.

The dollar rose against the yen and was flat versus the euro. Treasury securities were flat to lower.

Warnings vs. rate cuts

Another round of disappointments hit investors Friday. But the day's economic data were troubling enough to cause some analysts to upwardly revise their rate-cut outlooks.

Merrill Lynch and Lehman Brothers now predict a half-percentage point rate cut when the Federal Reserve ends its next meeting on June 27.

Jeff Benton, NYSE floor trader of LaBranche & Co., isn't convinced that borrowing costs will fall that much. But "the mere fact that people are thinking about it and hoping it's going to happen is going to put a little life back into the market," he told CNNfn's Market Call.

The shift in the rate cut outlook came after industrial production fell 0.8 percent in May, the government said, while consumer confidence slid. The University of Michigan said its first reading on June consumer sentiment declined to 91.6 from 92.0 in May.

Separately, the Labor Department signaled that inflation is not a big problem. Consumer prices rose 0.4 percent in May, lifted by a big jump in gasoline prices, and matching forecasts. The core CPI, which excludes food and energy costs, rose just 0.1 percent.

"These data indicate that inflationary pressures are largely confined to the energy sector of the economy," said Steven Wood, economist at FinancialOxygen.com.

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Still, corporations are having trouble. Fiber-optics component maker JDS Uniphase (JDSU: down $1.37 to $12.44, Research, Estimates) said it will lose money in the latest quarter. Wall Street expected a profit. Nortel Networks (NT: down $0.74 to $9.86, Research, Estimates), the network equipment maker, said it will cut another 10,000 jobs and warned of a much wider loss than Wall Street had expected. It also eliminated its quarterly dividend.

Non-tech firms also face slowing demand. McDonald's (MCD: down $1.29 to $28.67, Research, Estimates) warned that earnings in the second quarter will be below Wall Street forecasts.

But several blue chips rose, including J.P. Morgan Chase (JPM: up $1.31 to $44.90, Research, Estimates), Johnson & Johnson (JNJ: up $1.13 to $52.04, Research, Estimates) and Boeing (BA: up $0.69 to $64.25, Research, Estimates) .

Several tech stocks also gained, including Oracle (ORCL: up $0.15 to $15.00, Research, Estimates) and Motorola (MOT: up $0.32 to $14.25, Research, Estimates).

The market ends the week at a crossroads. Optimism that corporate profits, which are set to turn in their worst performance in a decade this quarter, will rebound later this year have kept a floor on stocks. The major indexes still remain above their worst levels of the year.

Still, consumer sentiment has darkened amid rising layoffs and a falling stock market. From its all time high last year, the S&P 500 is down more than 20 percent, the level considered a bear market.

The number of Americans filing for unemployment benefits is hovering near its highest levels since 1992, when the country was last emerging from recession.

But Phil Foreman, manager of the Evergreen Growth and Income Fund, sees stocks rising in the months ahead.

"Right now, you've got a lot of fear in the market with bad earnings," he said. "But I think the market, once we get through the next two weeks, will do better."

For stock market forecasters, the question is this: Do the losses over the last 15 months already reflect the worst news about sinking profits?

The day's trading action revealed few solid clues. Circuit City (CC: up $0.09 to $15.49, Research, Estimates) saw its shares rise even after reporting a 72 percent drop in profits, suggesting investors were willing to look beyond any problems.

That also was the case with Adobe Systems (ADBE: up $0.55 to $39.56, Research, Estimates). The maker of graphic design software drew buyers even after it said it expects weakness in North America and Europe to continue.

But International Rectifier (IRF: down $18.05 to $37.20, Research, Estimates) wasn't as lucky. Its shares fell as much as 35 percent after the maker of semiconductors that regulate electricity flows cut its sales outlook for the fiscal fourth quarter.

"Near-term, we're in for a continued choppy market," said William Rutherford, founder of Rutherford Wealth Management, a Portland, Ore., firm that invests money for wealthy individuals.

He worries about the cloudy outlook for any recovery in profits.

"That has to change before we can expect people to invest with confidence," Rutherford said.

Someone has confidence in H&R Block (HRB: Research, Estimates), whose latest quarterly numbers should stand out during these times of sinking earnings. The tax preparation company next week is expected to post a profit of $4 a share, up 16 percent from the year-ago period. graphic

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.