Tech company earnings warnings, EU commission warnings on the GE-Honeywell deal, ECB growth warnings, warnings from Charles Schwab (NYSE:SCH -1.32), even tropical storm warnings on the Gulf Coast that caused energy concerns. After all was done today, investors wouldn't have been surprised to see a warning that the sky was falling, too. And speaking of falling, the Nasdaq Composite (COMPX) broke below its pivotal short-term floor of 2,060, with a decline of 77.59 points, or 3.66 percent, to 2,044.07. Semiconductors, semiconductor equipment stocks, telecom equipment, and software stocks led today's tech decline.
The Dow (DJI) fell 181.49 points, or 1.67 percent, to 10,690.13. Honeywell (NYSE:HON -5.16) was the Dow's weakest link, followed by United Technologies (NYSE:UTX -3.16), Microsoft (NASDAQ:MSFT -1.79), and American Express (NYSE:AXP -1.75). The S&P 500 (SPX) shed 21.73 points, or 1.75 percent, to 1,219.87. The only good news today for bulls was the PPI report that showed that inflation, if not falling like everything else, was at least not rising.
In late afternoon trading, the banks and brokerages looked like they were set for a bounce but it failed to materialize. Overall, selling was broad based. The largest declines were in the utility, natural gas, financial, cyclical and biotech groups. The defensive drug, drugstores, gold, alcohol, and waste management groups recorded slight gains.
Internet shares were slammed on concerns that the companies would fail to meet their Q2 goals. Shares of Ariba (NASDAQ: -0.64) dropped to lows not seen since early April. Merrill Lynch Business-to-Business Internet Holders (AMEX:BHH -0.37), a basket of e-business software or services companies, dropped 5.96 percent, to $5.84. Merrill also downgraded fiber-optics leader Corning (NYSE:GLW -1.35). Also falling sharply on fairly heavy volume was Commerce One (NASDAQ:CMRC -0,86), down 15.44 percent to $4.71. Software security firm VeriSign (NASDAQ:VRSN -3.91) dropped 7.24 percent to $50.10. And I2 Technologies (NASDAQ:ITWO -1.89) fell 9.84 percent to $17.32. The overall Internet group fell four of the last five sessions on increased concerns of the longer than anticipated slowdown in demand.
The aforementioned General Electric (NYSE:GE +1.01) / Honeywell (NYSE:HON -5.16) merger may fall apart in Europe, after once being considered as a 95 percent lock. Intense negotiations have not bridged the gap between the two companies and the EU over anti-trust concerns, despite a reported $2.2 billion in concessions offered just before the midnight deadline. GE Chairman Jack Welch, a heck of a poker player, issued a strong statement of dismay yesterday, saying that the EU regulators' position exceeded anything imagined and differed sharply from their counterparts in the U.S. and Canada. That took the EU by surprise after it had assessed the talks in a more neutral manner. Is all this linked somehow to EU opposition to Bush administration policies, and with Bush currently in Europe the target of demonstrations and a hostile press? Once a merger like this becomes politicized, anything can happen. Stay tuned.
In the energy sector today, crude oil and gasoline prices moved slightly higher, but oil shares moved lower. The discrepancy arose due to crude supplies falling while refined gasoline inventories were rising. Mounting pressure resulting from Iraq's halting of exports and also Tropical Storm Allison in the Gulf Coast may influence prices going forward. The CBOE Oil Index (OIX) declined 1.10 percent to 337.69, and the Oil Service Index (OSX) shed 2.30 percent to 118.28. Oilfield services giant Schlumberger (NYSE:SLB -3.32) sank by 5.51 percent to $56.90 after the company warned of lower-than-expected revenue resulting from its purchase of Sema Plc. The Amex Natural Gas Index, (XNG) fell by 2.39 percent to 226.61, due to the fall of 5.50 percent in Questar (STR -1.56) to $26.81.
In the government data released today, inflation at the wholesale level was fairly benign in May, according to the Labor Department's Producer Price Index report. This should reassure the Fed, but the Street still expects another 25 basis point rate cut anyway later this month, for cut No. 6 in an effort to jumpstart the economy.
The Labor Department's jobless claim report for the week to June 9 was consistent with Street expectations. But the four-week moving average increased to the highest level in nearly nine years. This indicates further weakening in the job market as we try to turn the corner on this slowdown.
Business inventories in general held firm in April as sales declined for the second straight month, according to the Commerce Department. Retail inventories dropped but wholesale and manufacturing inventories rose. The stock-to-sales ratio that measures how long it will take to sell off current inventories rose to 1.44 months from 1.43 months in March. It was last at this level back in January 1999.
For those on Fed watch, Fed Vice Chairman Roger Ferguson reiterated his view today that productivity gains will likely not decline even as the economy slows. He said that most of the gains have been structural rather than trend-based or cyclical. Productivity gains can increase supply and stimulate faster economic growth without inflationary pressure. But in Q1, productivity hit its sharpest decline in eight years.
Among the bonds, the Fed-sensitive 2-year Treasury note yield dropped below the 4 percent mark today for the first time since October 1998 as traders predicted an increased chance for a deep Fed rate cut. The price was up 3/32 at 100 15/32. The 5-year note picked up 7/32 in price at 99 17/32, for a yield of 4.73 percent, a decline of 5 basis points. The 10-year note gained 8/32 at 98 9/32, for a yield of 5.23 percent, a loss of 3 basis points. Finally, the 30-year long bond picked up 12/32 at 96 9/32 and a yield of 5.63 percent, a shedding of 3 basis points.
The Consumer Price Index, Capacity Utilization, and Michigan Sentiment reports should make for an interesting day. If that's not enough, it's triple witching Friday, as options and futures contracts expire, which sometimes causes a wild ride for short-term traders. Let that be - yes - a warning to us all.