msnbc.com staff and news service reports
updated 7/2/2004 9:52:43 AM ET 2004-07-02T13:52:43

Stocks fell sharply Thursday, as concerns about Intel Corp.’s revenue forecast, soft June sales from General Motors and a number of brokerage downgrades prompted investors to lock in recent gains.

Major Market Indices

At the close, the Dow Jones industrial average was down 101.32 points, or 1 percent, while the broader Standard & Poor’s 500-stock index was off 11.90 points, or 1 percent. The tech-rich Nasdaq Composite index closed the day with a loss of 32.24 points, or 1.6 percent, largely on weakness in the semiconductor sector.

Semiconductor giant Intel came under pressure after a Dow Jones report said Morgan Stanley analyst Mark Edelstone said the mid-point of the chip maker’s third-quarter revenue outlook could be lower than estimates. Edelstone’s office declined to comment.

General Motors took a hit after it said its U.S. sales fell an unexpectedly sharp 15.6 percent in June as its aggressive incentives and discounts failed to lure more buyers into showrooms.

Internet portal Yahoo and airplane maker Boeing weighed on market sentiment after analysts cut their investment ratings.

In economic news, the Labor Department found a slight rise in the number of people who signed up for jobless benefits last week; economists had forecast a decrease in claims. Wall Street was waiting for the government’s monthly labor report, due Friday. Analysts expected to see 250,000 new jobs and a steady unemployment rate of 5.6 percent for June.

Separately, the Institute for Supply Management said its manufacturing index declined to 61.1 in June, down from 62.8 in May. The new reading was somewhat lower than the 61.5 forecast by analysts. Still, the gauge has been above 50 since June of last year, indicating that manufacturing activity is still in an expansion.

Investors reacted positively Wednesday to the Federal Reserve’s move to raise rates by 0.25 percentage point — the first hike in four years — largely because the decision had been so widely expected.

Now investors are free to focus on corporate profits, analysts say, but the prospect of a strong second quarter may be offset in the weeks ahead by continued anxiety about Iraq, inflation, terrorism threats and the presidential election.

Adding to Wall Street's inflationary worries Thursday, August crude oil futures surged 3 percent intraday, though at the end of the session they were down 15 cents at $38.59 a barrel. But the earlier rise, combined with the less-than-stellar economic news and a handful of brokerage downgrades on key stocks, contributed to the day’s profit-taking.

“Once you get that kind of move in oil, obviously you’re going to get out of equities,” said Brian Williamson, a trader with The Boston Company Asset Management. “That’s probably adding a little fuel to the fire on the sell side. Any inflation in the market at all is not good ... and higher energy prices are not good for stocks in general.”

A negative remark from Morgan Stanley on chip bellwether Intel pressured the tech sector. Intel was down 58 cents at $27.02 after an analyst with the brokerage house said the midpoint of its third-quarter revenue outlook might not match estimates.

Yahoo declined $2.10 to $34.30 after Smith Barney cut its rating to a “hold” from a “buy,” saying the stock had gotten too expensive, having climbed 63 percent since mid-March. Still, analyst Lanny Baker raised his price target to $36.50, noting that Yahoo is benefiting from strong Internet advertising trends.

Cardinal Health Inc. slumped $17.19, or 25 percent, to $52.86, after the company said earnings for its just-completed fiscal year would miss forecasts. Several brokerages downgraded the pharmaceuticals wholesaler, which also disclosed that state investigators have joined a federal probe of its accounting practices.

Boeing Co. lost $1.19 to $49.90 after Merrill Lynch & Co. cut its rating to a “neutral” from a “buy,” citing risks surrounding the recovery of the commercial airline sector. Boeing’s forecast for the next several years is largely dependent on a recovery in civil aircraft demand.

Time Warner Inc. was down 17 cents at $17.41 on news it has offered $5 billion for the film studio Metro-Goldwyn-Mayer, sparking a bidding war with Sony Corp. MGM, up 56 cents at $12.66, has been in talks with Sony for months over a sale that would value the studio at $5 billion, but the deal has snagged on financing terms. Sony added 21 cents to $38.26.

Declining issues outnumbered advancers by almost 2 to 1 on the New York Stock Exchange. Preliminary consolidated volume came to 1.80 billion, compared with 1.81 billion Wednesday.

Overseas, Japan’s Nikkei stock average finished 0.3 percent higher. In Europe, France’s CAC-40 declined 0.5 percent, Britain’s FTSE 100 lost 0.9 percent and Germany’s DAX index closed 0.4 percent lower.

The Associated Press and Reuters contributed to this report.

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