NEWS AND COMMENTARY
June 5, 2000
U.S. Stocks Fall; Qualcomm, OpenTV, Intel, BroadVision Drop
By Nick Olivari, Bloomberg
Slowdown Prompts Profit-Taking...Weiss comments
NEW YORK - U.S. stocks fell. Qualcomm Inc. gave back some of last week's 10 percent gain on reports China won't use its wireless phone technology for at least two years.
Computer and telecommunication stocks including Intel Corp., OpenTV Corp. and Exodus Communications Inc. fell on concern last week's gains, which helped propel the Nasdaq Composite Index to its best week ever, aren't sustainable given the outlook for corporate profit in a slowing economy.
Campbell Soup Co. advanced after a report Bestfoods may buy the company.
"It does not make a lot of sense for the stock market to rally if the economy is slowing,'' said Thomas McManus, the equity strategist at Banc of America Securities LLC, who has a year-end target of 1550 for the Standard & Poor's 500. That would be a gain of 4.9 percent from Friday's close.
S&P; 500 futures for June fell 3.50 to 1472.50, indicating the index will open 0.5 percent lower. Nasdaq 100 Index futures dropped 37.50 to 3714.00. June futures on the Dow Jones Industrial Average declined 22 to 10,750.
A slowing economy will reduce company earnings, lowering the amount investors are willing to pay for shares, McManus said.
Stocks gained last week on optimism that an economic slowdown may prompt the Federal Reserve to end its string of interest-rate increases soon. The Fed has raised rates six times in the past year.
We wondered last week why the market was gleeful hearing news that pointed to a slowdown in the economy, and, hence, an erosion of corporate profits. After taking a weekend to ponder the economic reports of the past week, it looks as if the market is going to take a dive as investors take their profits.
The last few weeks have been a roller coaster ride for the market. Though, instead of a gradual upward trend followed by a nosedive, it has been the opposite. Both the Nasdaq and the Dow have experienced several days of steady declines followed by a one or two day bounce. One thing is clear: the overall trend is downward. Despite some short-lived rallies, the Nasdaq is down over 25 percent from its high on March 10, 2000 and the Dow is down over 9 percent from its high on Jan. 14, 2000.
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