News Article
BusinessWeek.com
July 21, 2006
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Dell Warning Drags Stocks Lower

Microsoft's giant stock repurchase plan and strong earnings from Google and Caterpillar failed to outweigh gloomy news from the PC maker

Stocks finished lower Friday, extending the previous session's losses as a Dell (DELL ) profit warning countered upbeat earnings reports. New clashes between Israel and Hezbollah in Lebanon were also dampening sentiment, while volume was higher amid monthly options expiration, says Standard & Poor's Equity Research.

The Dow Jones industrial average fell 59.72 points, or 0.55%, to 10,868.38, up 1.2% for the week. The broader Standard & Poor's 500 dropped 8.84 points, or 0.71%, to 1,240.29, a 0.3% weekly gain. The tech-heavy Nasdaq composite shed 19.03 points, or 0.93%, to 2,020.39, a 14-month closing low on a weekly decline of 0.8%.

This week's testimony by Federal Reserve Chairman Ben Bernanke and minutes from the Fed's June 29 meeting weren't as dovish as many assumed, some analysts say. In both cases, the Fed's comments were relatively balanced on inflation, according to Jan Hatzius, chief U.S. economist at Goldman Sachs. "It is still a bit too early to be really confident until the Fed is clearly done tightening," Hatzius notes.

Mixed earnings news was in focus Friday. Microsoft (MSFT) was higher after the software giant guided its full-year profit forecast upward and said it will buy back $40 billion in stock. The company posted a 24% decline in fiscal fourth-quarter profit, beating analyst estimates.

Internet search giant Google (GOOG ) was modestly higher after posting better-than-expected second-quarter earnings of $721.1 million.

Dow member Caterpillar (CAT) was lower despite reporting a 38% jump in second-quarter profit. The construction equipment maker also lifted its full-year guidance.

Meanwhile, Dell was sharply lower after the computer maker warned that its second-quarter profit may lag Street forecasts.

In other earnings news, shares in Amgen (AMGN ) rose as the drugmaker guided its full-year profit projection higher.

Chipmaker Advanced Micro Devices (AMD) was sharply lower after posting an increase in second-quarter profit that fell below Street expectations amid declining revenue.

Energy services conglomerate Halliburton (HAL) dropped after the company said its second-quarter income nearly doubled, but its Kellogg Brown & Root engineering unit turned in an operating loss.

Earnings season continues next week, kicking off Monday with results from such companies as BellSouth (BLS ), Merck (MRK ) and Texas Instruments (TXN ).

The economic calendar was quiet Friday. Data releases next week include June new and existing home sales, second-quarter gross domestic product and July consumer confidence.

In the energy markets, September West Texas Intermediate crude oil futures closed up 16 cents at 74.43 a barrel as Mideast violence continued.

European markets finished lower. In London, the Financial Times-Stock Exchange 100 index lost 51.2 points, or 0.89%, to 5,719.7. Germany's DAX index slid 94.81 points, or 1.71%, to 5,451.01. In Paris, the CAC 40 index retreated 46.49 points, or 0.96%, to 4,818.55.

Asian markets finished lower. Japan's Nikkei 225 index dipped 125.58 points, or 0.84%, to 14,821.26. In Hong Kong, the Hang Seng index edged down 8.44 points, or 0.05%, to 16,464.18. Korea's Kospi index declined 1.97 points, or 0.15%, to 1,271.33.

Treasury Market

Treasuries yields ticked higher on Mideast worries after falling at the open. The 10-year note edged down in price to 100-20/32 for a yield of 5.04%, while the 30-year bond slipped to 90-30/32 for a yield of 5.1%.