Stock market prices decline for sixth week

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Stocks plummeted yesterday, marking the sixth straight week of declines that have driven the Dow Jones Industrial Average below 10,000 and put other indexes in negative territory for the year.

A host of worries is weighing on the market, chief among them a climb in the price of oil to a near-record high, signs that earnings and economic growth are cooling, and the threat of terrorism in the Middle East and at home as the political conventions approach.

The Dow ended the day down 88 points at 9,962, capping its worst string of weekly losses since October 2002, while the technology-driven Nasdaq Composite Index fell 2 percent to 1,849 and set a new low for the year. The Standard & Poor's 500 Index also is down for the year.

Triggering yesterday's declines were reports of disappointing earnings at Microsoft Corp., a Dow component, and Amazon.com, and a shortfall in sales at Coca-Cola Co., all raising fears that the recent softness in consumer spending continues.

"There's a lot to worry about out there," said Michael Sheldon, chief market strategist at Spencer Clarke LLC. "It's going to take a while for these issues to be resolved, and I think we'll be stuck moving sideways to lower until then."

The market has piled up losses despite a spectacular 24 percent increase in earnings at S&P 500 companies in the second quarter, following a 27.5 percent jump in the first quarter, according to Thomson Financial, the securities research and publishing company.

However, the market is looking ahead to a widely predicted slowdown in earnings growth in the second half of the year. Analysts surveyed by Thomson say earnings will rise a more moderate 15 percent in the summer quarter.

"The current cycle is following a traditional pattern," said John Silvia, chief economist with Wachovia Securities. "Consumer spending slows, and the year-over-year profit growth slows. There is still growth, but the momentum" is down.

The slowdown is "normal" in a maturing business cycle as personal incomes and spending settle into growth at a measured but steady pace, he said. "The challenge is to recognize the slowdown while not becoming too pessimistic."

The market has had trouble finding a silver lining, as investors focus on daily headlines that highlight lingering threats to economic growth: stubbornly high oil prices and the constant drub of terrorism and political turmoil in the Middle East.

Yesterday, the price of premium crude rose 35 cents to $41.55 -- less than a dollar from a new record high. Retailers are blaming the sluggishness in consumer spending in recent months in part to high oil and gasoline prices.

"Stock markets are oversold" and the market is 20 percent too low in light of the still-low level of interest rates, which makes stock prices look relatively cheap, said Lawrence Kudlow of Kudlow & Co.

He said the market should be celebrating developments such as Microsoft's stunning announcement this week that it would turn its huge $75 billion war chest of cash over to stockholders through dividends and stock buybacks.

Despite that unprecedented plan, Microsoft's rare miss of earnings targets unnerved investors yesterday and sent its stock down 86 cents to $28.14. Amazon.com's earnings report sent its stock plunging $5.99, or 13 percent, to $39.83.

"A lot of shares have reported great earnings but gotten pounded," said Mr. Kudlow. He attributed the sell-off to "over-exuberant expectations" in the market and "highly cautious guidance by CEOs who are worried about going to jail."

Stock investors also are worried about losing their tax cuts for capital gains and dividends, and other market-friendly measures put in place by President Bush, Mr. Kudlow said.

"Stocks are watching the election very carefully. The major averages have fallen this year alongside Bush's polls," he said.

Many analysts hope the market will find a bottom and trade in a lower range until some of the uncertainties are resolved.

"We have to get past some of these milestones on the calendar -- the conventions, the Olympics, the Fed meeting on Aug. 10, even the elections -- and we have to get through them unscathed," said Jeff Kleintop, chief investment strategist for PNC Financial Services Group.