Tech Warnings Drag Stocks Lower
Stocks opened broadly lower as a slew of warnings that company earnings would slip in the first quarter, especially in technology, combined with more fear in the financial sector to dampen the recent positive run on Wall Street.
The major indexes each slumped off the open, with the Nasdaq a little harder-hit t as several companies on the technology index gave dour forecasts for times ahead.
After the bell on Monday, Alcoa reported earnings that came up short of analysts' consensus estimates because of higher costs and a weaker dollar, but its sales beat forecasts.
Also, Novellus Systems warned that its first-quarter earnings would be lower than expected and its revenue would be at the low end of its forecast range, sending its shares down sharply.
Analysts' expectations for earnings have worsened. Profits for the Standard & Poor's 500 companies are now expected to be down 12.6 percent from a year ago, according to Thomson Financial. That compares with a 9.9 percent drop expected just last week and a 1.6 percent decline forecast a month ago.
There was growing sentiment that the negative outlook for earnings would prevent the market from putting together a sustained rally, though stability in the financials could act as a backstop for Wall Street.
"We're going to see some weakness this morning, today, the next several days, but the market should find some fairly sold footing as we continue to see funds poured into these financials," said Peter Kenny, managing director at Knight Equities.
In banking news, Merrill Lynch, which so far has written down $24 billion in investment related to the U.S. mortgage market, does not plan to raise further capital as it has already raised more than it has lost, Chief Executive John Thain said on Tuesday.
Washington Mutual shares were poised to slip after the bank said it will receive a $7 billion capital injection from private equity firm TPG and other investors.
The bank also said it was expecting a $1 billion first-quarter loss and lowered its dividend, sending the message to investors that the banking crisis had not yet passed. WaMu shares led gainers on the S&P Monday but were down sharply this morning.
And Bear Stearns front-office employees, including bankers and traders, are expected to find out their employment status on or near April 15, CNBC has learned, while their back-office colleagues will be informed about a week later.
The only upbeat note in the sector came from Morgan Stanley CEO John Thain, who said that although the markets are the most difficult he's seen in 40 years, there are signs that his bank has weathered the worst of the crisis and is poised for recovery.
The outlook for Advanced Micro Devices employees is also bleak, as the company said Monday it will cut 10 percent of its work force and gave a first-quarter revenue estimate below Wall Street expectations.
In tech, Dell shares slipped premarket, even though CEO Alan Dell said he is optimistic about the company's chances to grow sales and profits this year.
In economic news, pending home sales numbers for Februarywere down by a greater-than-expected 1.9 percent, but the news did little to affect markets, which have mostly priced in the housing slump.
Before the bell, the National Federation of Independent Business said its index of small business optimism fell to the lowest in its 22-year history. The index slipped 3.3 points in March to 89.6 as employers said they would be creating fewer jobs and cutting back on expansion, giving further rise to the belief that a recession either is imminent or has already arrived.