MARKET REPORT
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Stocks slid fast and hard in trading Monday. Nagging concern over the affect of rising energy prices and the weak euro on corporate earnings were blamed for the drubbing.
All small cap indicators were substantially lower on the day, with the Russell 2000 Index doubling its midday losses down 14.20 points, or 2.7%, to 516.68. The S&P Small Cap 600 Index tumbled, too, losing 6.15, or 2.8%, to 216.77; while the Wilshire 1750 Small Cap Index lost 21.39 points, or 2.4%, to 852.42.
Semiconductors reversed gains from earlier in the day. The Philadelphia Semiconductor Index ended the day down 23.34 points, or 2.4%, to 951.25. The semiconductor downturn compounded the Nasdaq Composite Index's woes. The tech-laden index for the session fell 108.71 points, or 2.8%, to 3726.52.
Internet issues are down "across the board - across the whole space," said Jennifer Jordan, a senior equity analyst at First Security Van Kasper.
Jordan said some of the selling can be attributed to a Morgan Stanley Dean Witter & Co. note to clients advising investors to cut back slightly on stocks because of an expected slowdown in corporate profits.
The Internet sector is hit especially hard by such news, Jordan said. With Internet stocks, there is a much-longer time to profitability. They are considered an aggressive-growth approach to investing, meaning Internet issues might be the first to go in a shrinking stock portfolio, she noted.
Shares of software-maker Allaire Corp. (NASDAQ: ALLR) fell over 40%, after the company said its third-quarter earnings would fail to meet analysts' expectations of 7 cents a share. The company said it would instead realize a loss of 5 cents to 20 cents a share. Shares of Allaire ended the day at 10 7/16, off 7 1/16.
Another small cap issue, heating and air-conditioning giant Lennox International Inc. (NYSE: LII), saw its shares lose nearly 20%, or 2 3/8, to end the day at 10 1/16. Earlier in the day, Lennox lowered its earnings estimates for the remainder of the year.
Despite the broad sell-off, Sam Stovall of Standard & Poor's remains upbeat on smaller stocks. He noted the S&P 600 index of small cap issues is up 13% for the year, and has a more attractive price-to-earnings ratio than the S&P 500.
Stovall said a "combination of worries," carrying over from last week, including a weak euro, rising energy prices and corporate profits have investors jittery.
He also said he expects that the U.S. economy would be hurt far more by the falling euro than by energy prices. That's because energy makes up a much smaller portion of the U.S. economy than it did 20 years ago.
Third-quarter-earnings worries are also on the mind of Uri Landesman of AFA Management Partners, who sees them still affecting the investor's mentality. But bellwether tech issues could cause a surge of interest if they come in with positive earnings pre-announcements, he said.
Landesman believes with so few companies prematurely releasing earnings data, it is difficult to gauge investor sentiment. If the bellwether tech issues manage to eke out satisfactory earnings, investors may react positively to the news or lack thereof, Landesman said.
In the broader indexes, the Dow Jones Industrial Average dropped 118.48, or 1.1%, to 10808.51, while the S&P 500 lost 21.30, or 1.5%, to 1444.51.
In Canadian trading, the Toronto Stock Exchange headed downward, too. The TSE lost 281.60 points, or 2.5%, to 10782, while the Canadian Venture Exchange reversed earlier gains and is now down 43.05 points, or 1.2%, to 3647.02.
In commodities trading, October crude-oil futures rose 96 cents, or 2.7%, to $36.88 a barrel, while October natural-gas futures rose 9 cents, or 1.7%, to $5.30. December gold fell 80 cents, or 0.3%, to $275.
In currency markets, the Canadian dollar fell 0.3% to US$0.6716 from US$0.6737.
In economic news Tuesday, look for the latest statistics on August housing starts, due at 8:30 a.m. ET. Wednesday brings information on July's trade balance, and the Federal Reserve releases its latest Beige Book a survey of regional economic activity at 2 p.m. On Thursday, the latest weekly initial-unemployment claims will debut.
