US blue chips drop as cash shifts to tech stocks

By Kristin Roberts

NEW YORK: Technology stocks climbed on Friday as investors shifted cash out of blue-chip names on concern that rising interest rates were hurting corporate earnings and revenue growth.

But trading was subdued and volume thinned out as the day wore on, traders noted, saying the session felt like a typical summer Friday.

The Dow Jones industrial average ended down 54.66 points, or 0.51 percent, at 10,614.06. Energy, retail, manufacturing and financial shares all lost ground as technology leaders rose.

Strength among technology stalwarts boosted the Nasdaq composite by 49.28 points, or 1.29 percent, at 3,874.84. Biotechnology stocks were the clear leaders among Nasdaq names but computer, computer-chip and software shares all gained.

Broader measures wavered as the reached into both the tech and non-tech worlds. The Standard & Poor's 500 index was off 4.72 points, or 0.32 percent, at 1,456.95 while the Wilshire 5000 slipped 0.64 of a point to 13,644.90.

For the week, the Dow lost 180.70 points, or 1.67 percent, while the Nasdaq added another 61.46 points, or 1.62 percent.

The blue-chip market was rattled by forecasts of disappointing sales and earnings ahead of the July quarterly reporting season. Stocks pushed higher at the opening on benign economic data.

The string of pessimistic corporate forecasts also led to worry that the Fed's campaign of interest-rate increases were cramping revenue growth. Next week kicks off what traditionally has been a season of confessionals, a time when companies revise their earnings targets downward.

"The damage being done by monetary policy will eventually catch up with each and every company that operates in the economy, one way or another," said Ned Riley, chief investment strategist at State Street Global Advisors.

Higher borrowing costs can hurt companies on a variety of fronts. They can dampen spending on the products the corporations provide by making it harder for consumers and other companies to get money to buy the products.

Among the most active stocks, McDonald's Corp., the world's largest fast-food chain, fell 2-1/16 to 33-3/8 after reporting a sales slowdown.

Electronic Data Systems was one of the most active stocks on the Big Board, tumbling 14-13/16 to 43 and hitting a new intraday low of 42, after the computer services provider forecast disappointing revenues.

Mylan Laboratories Inc., a top U.S. generic drug maker, also was one of the most active stocks on the New York Stock Exchange, down 6-5/16 at 17-5/16. The company warned that its quarterly profits would be half what Wall Street expected.

"There is no doubt that the interest-rate increases are having an effect on the economy," said Bernie Horn, portfolio manager at Polaris Capital Management.

"But people tend to be very optimistic about the bullish tone in the market," despite corporate announcements of slowing revenue growth, he said.

Stocks rallied earlier in the session after traders chose to take an optimistic view of the Producer Price Index (PPI) for May, which gave a mixed reading of the U.S. inflation picture.

But financials dropped back, losing an early rally to leave J.P. Morgan & Co. down 4-3/8 at 128-9/16.

Retailers, also sensitive to interest rates, fell and the S&P retail index lost 3.11 percent to close at 836.33. Wal-Mart Stores Inc., one of the 30 Dow stocks, slipped 3-3/16 to 54, standing well below a 52-week high of 70-1/4 but up from a year low of 38-7/8.

On the upside, biotech shares rallied, extending an upswing after taking a brief breather on Thursday. The American Stock Exchange's biotech index gained 6.99 percent to 609.31.

Software company Microstrategy Inc. rocketed, extending a week of gains that have doubled the stock's value, as rumours of a $100 million cash infusion sparked buying, traders said. The stock was the second most heavily traded Nasdaq issue, gaining 18-1/8 to 62-1/4 with 26.6 million shares changing hands.

Volume was light, with just 785.1 million shares traded on the New York Stock Exchange. The Nasdaq logged 1.27 billion shares.

(C) Reuters Limited 2000.