By Frederic Ruffy, Optionetics.com 6/27/2003 1:45:00 PM
Stocks finished the day sharply lower Friday. Midway through the trading session, the situation was stable and neither the Dow Jones Industrial Average ($INDU) nor the Nasdaq Composite Index ($COMPQ) had made a meaningful move in either direction. That all changed in the final two hours of trading, however. A late-day sell-off drove stocks sharply lower. By the end of the day, the industrial average had tumbled 90 points and the Nasdaq finished the day down roughly nine. For the week, the Dow gave up more than 200 points and the Nasdaq fell amost 20.
The late-day sell-off Friday occurred despite relatively upbeat economic news earlier in the trading session. Shortly after the start of trading, the University of Michigan reported that its index of consumer confidence increased to 89.7 from 87.2 in mid-June. Economists were expecting a reading of only 87.5. In addition, the latest numbers on personal income and consumer spending met economist estimates. The Commerce Department reported early Friday that personal income rose .3% and spending increased by .1% in May.
Despite signs of economic strength, investors aggressively sold shares and booked profits in afternoon trading Friday. Many of the quarter’s best performers, such as biotechnology, networking, Internet, and airline stocks, suffered sharp losses late in the trading session. The AMEX Biotechnology Index ($BTK), which was in positive territory midday, finished down more than 4% from the day’s highs. The AMEX Networking Index ($NWX), the CBOE Internet Index ($INX), and the AMEX Airline Index ($XAL) also finished well below the day’s highs.
Shares of Nike (NKE) were under pressure all day after the company reported earnings late Thursday. Nike said that profits rose 18% in the most recent quarter and that higher overseas sales were lifted by a weaker dollar. However, sales were hurt by weak domestic demand and Nike warned that future sales were likely to be below expectations. NKE finished the day down $3.85 at $53.08 a share.
Investors also sold shares ahead of possible earnings pre-announcements next week. Monday marks the last day of the second quarter and many companies will begin reporting earnings results during the second week of July. Between now and then, there is a risk that companies will begin to warn investors that their results will fall short of analyst estimates. This period of earnings warnings leading up to the actual reporting season can sometimes add to market volatility. Tenet Healthcare (THC), Advanced Micro Devices (AMD), FedEx Corp. (FDX), and Avery Dennison (AVY) were among the companies to lower their profit forecasts during the latest week of trading.
Next week, investors will close their books on the second quarter 2003 and begin positioning for the third. Many fund managers may use the last day of trading of the quarter to sell some losers and buy winners, which is a process known as “window dressing”. Then, investors will begin adding and closing positions to start the third quarter. As a result, trading is likely to be active early in the week, and then gradually diminish as market players take time out to celebrate Friday’s 4th of July holiday.
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