Technology stocks opened the fourth quarter on a downbeat Monday, pushing the Nasdaq composite index below its recent trading range.
Disappointment that the Federal Reserve, in the view of most forecasters, will maintain its hawkish bias regarding inflation and interest rates at a policy meeting Tuesday deepened the gloom in the tech sector, battered by recent earnings warnings from such leaders as Intel and Apple Computer.
The warnings continued late Monday. After the close of New York trading, Xerox said it expects to post a third-quarter loss of from 15 cents a share to 20 cents a share. Analysts tracked by First Call/Thomson Financial were expecting a profit of 12 cents a share.
Xerox has issued a series of financial performance warnings beginning in October 1999.
The Nasdaq composite index sank 103.92 points, or 2.8 percent, to 3568.90, its lowest close since May 31. Nasdaq trading volume was a moderate 1.77 billion shares, as losing stocks topped winners by nearly a 2-1 ratio.
Intel, Dell Computer, Apple, Microsoft and Sun Microsystems were among the big-name computer tech stocks posting losses in heavy volume.
Strength in financial service and oil stocks boosted the Dow Jones industrial average, which closed up 49.21 points, to 10,700.13.
Citigroup, J.P. Morgan and American Express advanced. International Business Machines, one of the four computer-technology stocks in the Dow, added $5.19, to $117.81.
The Standard & Poor’s 500 index slipped 0.28, to 1436.23. The Russell 2000 index of small-company stocks fell 9.70, or 1.9 percent, to 511.67.
Major oil company stocks rose with oil futures prices. Crude oil for November delivery rose $1.34 a barrel, to $32.18, amid new tensions in the Middle East. There were no signs that European nations would follow the Clinton administration in releasing oil from emergency reserves.
Energy Secretary Bill Richardson said Monday that oil companies had affirmed their ability to boost output of heating oil for the winter. Refiners also endorsed the administration’s plan to release 30 million barrels from the U.S. Strategic Petroleum Reserve, he said.
Transportation stocks fell in line with the gain in oil prices. The Dow Jones transportation average fell 2.3 percent, to 2464.42.
Fed policymakers are expected to leave their short-term interest rate target unchanged but indicate that inflation remains their dominant concern.
Last month, some analysts indicated that the economy is showing enough signs of a slowdown for the Fed to declare a “neutral” stance on inflation, but such a statement seemed unlikely Monday.
Monday’s economic reports concerning construction spending and business conditions as tracked by corporate purchasing managers did little to clarify the economic outlook as the Fed prepares to meet. Both suggested a moderate slowing of economic activity.
Treasury bonds closed lower, sending yields higher, as oil prices resumed their climb.
Treasury auction: Interest rates rose at Monday’s auction of 3- and 6-month Treasury bills. The discount rate on 3-month bills was 6.07 percent, up from 6.00 percent a week ago. The rate on 6-month bills was 6.04 percent, up from 5.98 percent a week ago. The coupon equivalent rates were 6.26 percent for 3-month bills and 6.32 percent for 6-month bills.
Local news: ServiceMaster, a diversified provider of industrial and residential services, sank 11 percent, to $8.75. The company said profits for the third quarter and full year would not meet Wall Street forecasts. The company blamed higher fuel and labor costs as well as the cost of restructuring its TruGreen landscaping unit.
– Chicago-based packaging products firm Smurfit-Stone Container plunged 17 percent, to $9.91, a 52-week closing low, after investment strategist Edward Kerschner of PaineWebber removed the stock from his “highlighted stocks” list.
– Peoria-based Caterpillar gained 10 percent, to $34.25, despite last Friday’s warning that the company would miss third-quarter profit estimates. Shares plunged late Friday after the news was released but rebounded Monday. Goldman Sachs and PaineWebber were among the brokerage firms cutting earnings estimates or investment recommendations on the stock Monday.
