Microsoft earnings warning prompts selloff

By LISA SINGHANIA

Associated Press

NEW YORK – Spooked by an earnings warning from Microsoft, investors today dumped high-technology stocks in a selloff that quickly spread across the market.

A bearish forecast from household products company Clorox added to Wall Street’s fears that the economy is slowing too much, and that earnings might fall more than expected.

“It’s not just tech companies warning any more, now you’re into consumer products. It was banking earlier this month, this week UPS said business wasn’t that good and now you have Clorox,” said Larry Wachtel, market analyst at Prudential Securities. “It’s an overall economic malaise and each time one of these announcements comes out, it undermines the market.”

The Dow Jones industrial average closed down 240.03 at 10,434.96, a 2.3 percent loss, according to preliminary calculations.

The Nasdaq composite index dropped nearly 2.8 percent, falling 75.17 to 2,653.34. The Standard &Poor’s 500 index slid 28.83 to 1,312.10, a nearly 2.2 percent loss.

It was the heaviest trading day ever on the New York Stock Exchange, where an estimated 1.55 billion shares changed hands.

The expiration of option contracts and futures contracts today, in what is called a “triple-witching,” intensified the selling, but analysts said earnings concerns were responsible for most of today’s losses.

Microsoft’s warning late Thursday that a worldwide slowdown in computer sales would hurt its second-quarter results was the latest in a series of preannouncements by major companies suggesting the slowing economy is hurting their bottom line.

Investors have been selling stocks, particularly technology issues, on fears about an economic slowdown and falling corporate profits since Labor Day. But recent warnings from non-technology companies are taking a toll on already anxious investors.

Microsoft fell $6.31, or 11 percent, to $49.19. Other technology stocks also slid, including Intel, off $2.69 at $32.44 and Cisco Systems, off $2.77 at $48.17.

Clorox’s forecast of lower-than-anticipated quarterly results sent it down $3.94 to $30.06. Tobacco was also weak; Philip Morris was off $1.44 at $40.06.

But financial and pharmaceutical issues, usually perceived as a safe haven in uncertain economic times, appeared to recover after spending much of the session in negative territory. Banker J.P. Morgan rose $2.06 to $160. Schering-Plough was up 44 cents at $58.31.

A Labor Department report showing a higher-than-expected inflation reading also surprised Wall Street, which is counting on an interest rate cut early next year. The Federal Reserve, which sets the nation’s monetary policy, previously has cited inflationary pressures as reasons to raise interst rates.

Even influential Goldman Sachs strategist Abby Joseph Cohen’s statement today that she did not expect the U.S. economy to fall into a recession failed to assuage the market.

Declining issues led advancers by more than 7 to 5 on the New York Stock Exchange, where volume was 1.55 billion shares, compared with 1.04 billion on Thursday.

The Russell 2000 index dropped 3.78 to 458.04.

Overseas, Japan’s Nikkei stock average fell 2.5 percent. Germany’s DAX index slipped 2.1 percent, Britain’s FT-SE 100 slid 1.3 percent, and France’s CAC-40 was off 1.1 percent.

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