- The Washington Times - Wednesday, July 16, 2003

NEW YORK (AP) — Investors collected profits for a second straight day yesterday as Federal Reserve Chairman Alan Greenspan reiterated a mixed assessment of the economy. Analysts also attributed the market’s pullback to earnings reports, saying that while most have been positive, the results haven’t wowed investors.

Stocks built on losses from Tuesday when Mr. Greenspan cautioned in the first of two days of congressional testimony that deflation, an economically dangerous long-term slide in prices, remains a possibility. He also said the economy is poised for strong growth in the second half of the year, which, while a good thing, raised questions about whether interest rates are headed higher.

“People are concerned that if rates go up, this sort of nascent [economic] recovery could be in jeopardy. It is not a major fear, but given the advances the market has made since March, the tendency to take profits is out there,” said Richard A. Dickson, senior market strategist at Lowry’s Research Reports in Palm Beach, Fla.

The Dow Jones Industrial Average closed down 34.38, or 0.4 percent, at 9,094.59, adding to the Tuesday loss of 48.18.

The Nasdaq Composite Index declined 5.24, or 0.3 percent, to 1,747.97. The Standard & Poor’s 500 Index fell 6.33, or 0.6 percent, to 994.09.

The Labor Department reported that consumer prices increased a modest 0.2 percent last month. The advance in the Consumer Price Index, the government’s closely watched gauge of inflation, followed a 0.3 percent decrease in April and flat prices in May.

The 0.2 percent rise matched forecasts by analysts and could alleviate concerns that the economy might suffer deflation, although that wasn’t apparent in trading yesterday.

On Tuesday, Mr. Greenspan began his semiannual report on monetary policy before Congress, telling a House panel that the economy is poised for stronger growth by the end of the year, but that the threat of deflation remains. Mr. Greenspan said, however, that the Fed would leave interest rates, which it has reduced 13 times since early 2001, low “for as long as it takes” to stimulate the economy.

Mr. Greenspan’s testimony continued yesterday, this time before the Senate Banking, Housing and Urban Affairs Committee. His comments mirrored those made Tuesday.

Analysts said quarterly earnings results, which companies began releasing in earnest this week, contributed to the market’s two-day decline. Investors were hoping that companies would raise third-quarter and yearly outlooks, and had factored strong second-quarter profits into higher stock prices.

Earnings are mostly exceeding or meeting expectations, said Brian Belski, fundamental market strategist at US Bancorp Piper Jaffray, but not to the degree they did following the first quarter.

Since the lows made March 11, the Dow has gained nearly 21 percent, the Nasdaq has surged 37.5 percent and the S&P; has advanced 24.2 percent.

“Given the fact that earnings are not blowing away numbers, people are a little concerned that prices have gotten ahead of themselves,” Mr. Belski said.

While EMC beat second-quarter earnings estimates by a penny a share, the maker of data storage equipment said its third-quarter results would merely meet expectations, causing its shares to fall 90 cents to $10.17.

Oakley dropped 79 cents to $11.32 after the maker of high-end sunglasses missed analysts’ earnings expectations by 2 cents a share.

Restaurant company O’Charley’s slid $2.51 to $19.22 after cutting its second-quarter earnings estimate.

Citigroup fell $1.31 to $45.52 on news that Chairman Sanford I. Weill was giving up his job as chief executive, a move that followed months of speculation. Mr. Weill will remain chairman of the board until the 2006 annual meeting.

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