A sales warning by one of the world's leading makers of computer chips helped push Wall Street lower on Tuesday as investors gave a chilly reception to the start of the earnings season.
By the closing bell, the Dow Jones Industrial Average was down 0.6 per cent at 10,556.22. The S&P 500 dropped 0.6 per cent to 1,183.04 and the Nasdaq Composite fell 0.8 per cent to 2,079.62.
US stocks, which touched multi-year highs last month, have yet to recover from a malaise that has gripped Wall Street since Christmas. Profit-taking, inflation jitters and a hit-or-miss holiday season for retailers have driven leading US indices lower in eight of the past 10 trading sessions, confounding many bulls' predictions of a strong start to 2005.
Paul Mendelsohn, chief investment strategist at Windham Financial Services, said that macroeconomic issues were likely to take a back seat to corporate earnings as the key driver of market sentiment over the next several weeks. He said the impact of recent interest rate rises on corporate profits meant that "when earnings are said and done for the fourth quarter, we are certainly not going to be able to maintain the levels we did in the first and second quarters of last year".
Investors found little solace yesterday in a sales update from Advanced Micro Devices, the semiconductor maker, which warned that sales of its flash memory cards could fall in the fourth quarter.
The warning cast an ominous shadow over the chip sector ahead of an earnings report by Intel, the world's biggest chipmaker, which was due out after Tuesday's closing bell. Thomas Thornhill, analyst at UBS, said that he expected semiconductor stocks to revive towards mid-2005 as chip companies and their customers reduced bloated inventories.
AMD shares fell more than 26 per cent to $14.86. Intel shares slipped 1.5 per cent to $22.54. The Philadelphia Semiconductor Index, which tracks a basket of semiconductor stocks, fell 2.5 per cent to 396.19.
Alcoa, the world's biggest aluminium producer, fell 2.7 per cent to $29.78 after it said rising raw materials costs and the weaker dollar had led to a fall in quarterly profits. The company was the first of the Dow stocks to report earnings this season.
Genentech shares fell 6.9 per cent to $50.70 in spite of a 63 per cent surge in quarterly profits. The company was hit by a downgrade on Tuesday, after it revealed lower-than-expected sales of a key cancer drug.
Hewlett-Packard, the computer maker, fell 3.7 per cent to $20.05 after a downgrade by Morgan Stanley. Apple Computer slipped 6.4 per cent to $65.56 as its annual Macworld expo got underway San Francisco. Apple shares were among the top performers of 2004.
Rockwell Automation, the factory controls company, rose more than 12 per cent to $51.85 after broker upgrades.
