msnbc.com news services
updated 1/21/2005 8:51:37 AM ET 2005-01-21T13:51:37

Nervous investors overlooked a strong earnings report from Citigroup Inc. and a possible merger of two department store giants Thursday, pushing Wall Street’s main stock indices to their lowest levels of the year after disappointing earning news from the technology sector.

Major Market Indices

Investors were unnerved by perennial market favorite eBay Inc., which missed its earnings target for the fourth quarter and said its outlook for the current quarter was lower than expected, leading three brokerage firms to lower their ratings on the online auctioneer. Cell phone maker Qualcomm Inc. also issued a disappointing profit forecast.

The pressure from tech shares took momentum from Citigroup’s strong earnings, and investors also shrugged off reports of a merger 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 ongoing concern 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 A.G. 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 closed the day down 68.50 points, or 0.7 percent, while the broader Standard & Poor’s 500-stock index was down 9.22 points, or 0.8 percent. The Nasdaq composite index tumbled 27.71 points, or 1.3 percent. All three stock-market indices finished the day at new lows for 2005.

The Nasdaq Stock Market’s trading systems were hit by a glitch Thursday morning, leaving some of the market’s stocks unavailable for trading. A Nasdaq spokesperson said a network switch failed, but the issue was fully resolved by 11 a.m. ET. The problem impacted about 20 percent of Nasdaq’s stocks. The problem also extended to Nasdaq’s trading of exchange-listed stocks, such as those listed on the New York Stock Exchange.

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.”

The talks between Federated and May, reported Thursday by The Wall Street Journal, signals 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.

Qualcomm posted a 46 percent rise in first quarter earnings, thanks to upgraded wireless networks, and surpassed Wall Street profit forecasts by a penny per share. But investors were disappointed with a conservative 2005 outlook. Qualcomm skidded $3.29, or 8.01 percent, to $37.78.

Citigroup dropped 27 cents to $47.77 after reporting record quarterly earnings that were in line with Wall Street expectations. The financial giant and Dow component also announced a 10 percent increase in its quarterly dividend.

Ford Motor Co. swung to a profit in the latest quarter, compared to heavy losses a year ago stemming from 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 thanks to 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.

Overseas, Japan’s Nikkei average fell 1.1 percent. In Europe, Britain’s FTSE 100 closed down 0.4 percent, France’s CAC-40 lost 0.7 percent for the session and Germany’s DAX index dropped 0.6 percent.

Reuters and the Associated Press contributed to this report.

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