- The Washington Times - Thursday, January 20, 2005

NEW YORK (AP) — Nervous investors overlooked strong earnings from Citigroup Inc. and a possible merger of two department store giants, and pushed stocks substantially lower yesterday on disappointing earnings from the technology sector.

Investors were troubled as perennial market favorite EBay Inc. missed its earnings target for the fourth quarter and said its outlook for the current quarter was lower than expected. Three brokerage firms lowered their ratings on the online auctioneer. Cell phone maker Qualcomm Inc. likewise issued a disappointing profit forecast.

The pressure from technology shares siphoned momentum from Citigroup’s strong earnings, and investors also shrugged off reports of merger talks between Federated Department Stores Inc. and May Department Stores Co.

In the face of other uncertainties — the upcoming Iraqi elections, OPEC’s meeting on Jan. 30, and concerns about inflation — the market will likely continue to give ground should earnings disappoint, analysts said.

“I think you’ve got all these things that have snowballed and are prompting people to pull chips off the table,” said Scott Wren, equity strategist for AG Edwards & Sons. “We have a nice, modest, sustainable kind of economic environment that stocks perform pretty well in, but we have to get past some of these things first.”

The Dow Jones Industrial Average fell 68.50, or 0.65 percent, to 10,471.47.

Broader stock indicators also lost ground. The Standard & Poor’s 500 index was down 9.22, or 0.78 percent, at 1,175.41, and the Nasdaq Composite Index dropped 27.71, or 1.34 percent, to 2,045.88.

In economic news, the Conference Board’s Index of Leading Economic Indicators rose 0.2 percent in December, with November’s rise revised to 0.3 percent. The index is designed to measure future economic activity.

“When you see economic figures like this, it puts the past few weeks in its proper perspective,” said Rod Smyth, chief investment strategist at Wachovia Securities. “We’re in a correction right now from the rise we saw since mid-October. It’s perfectly natural for markets to behave this way.”

That correction has nearly wiped out all of the Nasdaq’s gains from the fourth-quarter rally, while severely denting the advances made by the Dow and S&P; 500. The Nasdaq’s close was its worst showing since Nov. 10, while the Dow had its lowest close since Dec. 7 and the S&P; 500 saw its worst close since Nov. 30.

The talks between Federated and May, reported yesterday by the Wall Street Journal, signal another major consolidation in the retail sector, which is struggling to overcome the dominance of Wal-Mart Stores Inc. The proposed merger would combine Federated’s Macy’s and Bloomingdale’s stores with May’s Lord & Taylor, Filene’s and Marshall Field’s.

Federated slid $1.77 to $55.31 on the news, while May, which recently jettisoned Chief Executive Officer Gene Kahn, gained $2.88, or 9.18 percent, to $34.25.

EBay tumbled $19.72, or 19.14 percent, to $83.33 after missing Wall Street profit forecasts by a penny per share. The company drew immediate criticism from analysts after posting a 2005 outlook that, while still very solid, was less than expected.

Ford Motor Co. swung to a profit in the latest quarter, compared with heavy losses a year ago after a major restructuring effort. The automaker beat analysts’ expectations by a penny per share. Ford nonetheless lost 47 cents to $13.46.

AT&T; Corp. fell 44 cents to $18.07 after seeing its fourth-quarter profit surge nearly 84 percent as a result of a one-time tax benefit. The telecommunications giant beat Wall Street profit forecasts by 20 per share, even though it posted a loss for the full year. The company’s 2005 outlook was muted, however.

Delta Air Lines Inc. reported a $2.2 billion loss for the fourth quarter as the struggling airline works to reduce costs and attract more customers with steep fare cuts. High fuel prices added to the losses, which were still 37 cents per share steeper than analysts had expected. Delta was down 58 cents, or 9.57 percent, at $5.37.

Declining issues outnumbered advancers by 5 to 2 on the New York Stock Exchange, where preliminary consolidated volume came to 2.11 billion shares, compared with 1.91 billion on Wednesday.

The Russell 2000 index of smaller companies was down 5.57, or 0.9 percent, at 612.34.

Overseas, Japan’s Nikkei stock average fell 1.06 percent. In Europe, Britain’s FTSE 100 closed down 0.36 percent, France’s CAC-40 lost 0.69 percent for the session, and Germany’s DAX index dropped 0.59 percent.

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