Stocks fall on Microsoft decision, tech downgrades

By Amy Baldwin

Associated Press

NEW YORK – Wall Street maintained a low profile Tuesday with cautious investors selling stocks moderately lower on an unsurprising Supreme Court ruling on Microsoft and taking profits from the market’s recent rally.

The pullback was expected given recent gains, notably five consecutive wins for the Nasdaq composite index, and political uncertainty as the United States continues its military strikes in Afghanistan, retaliating for the Sept. 11 terrorist attacks.

The Dow Jones industrial average closed down 15.50 at 9,052.44, according to preliminary calculations, having gained 272.21, or 3.1 percent, last week. Microsoft was easily the weakest Dow industrial, falling $3.48, or 6 percent, to $54.56 after the Supreme Court said it would not hear the software maker’s appeal of its antitrust case, a decision analysts said the market expected.

The broader market was also weaker. The Nasdaq fell 35.78 to 1,570.17, having claimed a five-day winning streak Monday for the first time since the week of June 25. The Standard &Poor’s 500 index, considered the best measure of Wall Street’s performance, declined 5.69 to 1,056.75.

While analysts were encouraged by the market’s recent strides, they don’t expect the market to move much higher until next year. The best investors can expect are the low levels seen just before the attacks when investors sold off shares in anticipation of companies’ dreadful third quarter results, analysts said.

“The market is holding up in the respect that we are settling into a trading range. We are right around where we were before the Sept. 11 date when we had the capitulation,” said Barry Hyman, chief investment strategist at Ehrenkrantz King Nussbaum. The Dow is about 600 points below its Sept. 10 close, while the Nasdaq is down about 120 points.

Analysts also said it was hard to discern what factored most into Tuesday’s modest downturn as investors refrained from making major commitments, keeping trading volume lighter than it has been recently. Investors seemed to be waiting and watching, putting off big decisions to await news on the political and economic fronts.

“It is really difficult to get a handle on this market. Volume has slowed and it’s hard to get a feel for this market,” said Ricky Harrington, a technical analyst for Wachovia Securities.

Harrington expects the market to trade in a tight range of about 200 to 300 points each for the Dow and the Nasdaq.

“But the next 200 or 300 points could be in either direction. There is no way to predict,” Harrington said, citing the political uncertainty as the biggest factor weighing on the market.

However, analysts called Tuesday’s downturn minor considering how investors have been somewhat more optimistic about the economy and enthusiastic about stocks. Wall Street bid shares sharply higher last week after the Federal Reserve lowered interest rates for the ninth time this year and President Bush pushed Congress to approved a $60 billion economic stimulus package.

This week’s trading has been more cautious as investors know it will take a while for the economy to benefit from the lower rates and the possible tax cuts, analysts said.

Investors are also concerned that the United States will suffer more terrorism as the military retaliates for last month’s assaults in New York and Washington.

“The market is just settling into the acceptance of a prolonged retaliation … and is preparing itself the earnings season, which is going to be poor,” Hyman said.

Most of the major earnings results are due to be released in the next two to three weeks.

Tech stocks were the market’s weakest spot Tuesday, falling on the Microsoft news as well as downgrades by brokerage houses.

Semiconductor companies and those that make equipment for the industry suffered after a cautious research note by Merrill Lynch. Chip maker Intel, also a Dow industrial, fell 79 cents to $21.45, while equipment maker Applied Materials tumbled $2.71 to $31.15.

Networkers traded lower after JP Morgan reduced its rating and earnings estimates on several companies and said it is premature to say the industry has bottomed. Juniper Networks stumbled 39 cents to $14.85, while Cisco Systems declined 46 cents to $14.59.

Beyond technology, the market was more mixed. Boeing fell 62 cents to $36, while Wal-Mart rose 97 cents to $52.08.

Declining issues outnumbered advancers nearly 8 to 7 on the New York Stock Exchange. Volume was 1.15 billion shares, compared with 976.87 billion traded Monday.

The Russell 2000 index, the gauge of smaller company stocks, fell 3.52 to 408.66.

Overseas markets were mixed Tuesday. Japan’s Nikkei stock average finished the day down 1.9 percent, while stocks in Europe fared better. France’s CAC-40 ended the day with a slight gain, up 0.1 percent, Britain’s FT-SE 100 rose 0.5 percent, and Germany’s DAX index slipped 0.3 percent.