[Stuart Varney, Cnn Anchor:] Tonight on
[Moneyline:] the Nasdaq slammed again and airline stocks plummet on the Big Board. Will this be worst year for stocks in a decade? We'll ask star strategist Abby Cohen. Dragging on the techs: Apple, after so-so news on sales. We'll ask CEO Steve Jobs whether his flashy new PCs will get the same reception in stores as they did today at Macworld. Once the boy wonder on Wall Street, now the white knight at Bank One: Can Jamie Dimon rescue a floundering giant? We'll have a special interview. And: high season for low-brow humor; A top-grossing trend sweeping Madison Avenue and Hollywood.
[Announcer:] This is MONEYLINE. Reporting tonight from New York, Stuart Varney.
[Varney:] Good evening, everyone, and welcome to MONEYLINE. Willow is off tonight. We have a great show for you tonight, including interviews with Abby Cohen and three leading chief executives, but first, our top story: techs in trouble again. The Nasdaq today tumbled for the second-straight session on big declines in Microsoft, Apple and Intel. All of these companies reported better-than-expected profits after the bell last night. But today, Wall Street looked behind those headlines and didn't seem to like what it saw. The result: The Nasdaq is now back in the red for the year. Greg Clarkin reports.
[Greg Clarkin, Cnn Correspondent:] A jarring sell-off of technology stocks as investors soured on the sector; analysts say some of the blame goes to Microsoft. They reported growth that slowed in its core PC business, a situation not expected to change any time soon. Microsoft helped pull the Nasdaq lower by 121 points, or almost 3 percent. But market watchers cautioned against reading too much into the drop.
[Clark Yingst, Prudential Securities:] Given the very strong move last week, it's our best guess on our trading desk that this is simply profit-taking on the good news. These stocks were ahead of themselves in the technical bases.
[Clarkin:] Microsoft shares tumbled almost 7 percent. Intel beat estimates, but with help from selling investments. Its stock fell as well. Veritas beat street estimates, but came in short of the whisper number. It plunged. Commerce One topped estimates, but not the lofty expectations of some investors. It fell sharply. And competitor, Ariba, slipped with it. The Dow slipped 43 points to close at 10696. The batch of blue chips posted earnings: Coca-Cola rebounding from a recent slump. Citigroup and Boeing beat estimates. But United Technologies, despite reporting a few pennies better than expected, lost ground in the market. And it was a brutal day for airline stocks: United fell. UAL has labor problems, and it said the second half of the year looks weak. American's parent, AMR, fell. And US Airways came in far short of earnings estimates due to higher cost. One of Big Board's bright spots was Bank One. It rose on details of its restructuring. All of these earnings report and the news leaves investors with lot to digest.
[Mary Farrell, Painewebber:] We have what was perceived as disappointing revenues on Microsoft, good earnings on Intel, on Apple's part. So you can see, there's really a lack of direction as the market's attempting to respond to what seems to be an ever- changing earnings climate.
[Clarkin:] Now, smack in the middle of all this arrives Mr. Greenspan. The Fed chairman will brief the Senate Banking Committee tomorrow on the economy. And with Wall Street spilt on whether the Fed hikes rates again next month, you can bet his 10:00 a.m. appearance on Capitol Hill receives a lot of attention Stuart.
[Varney:] You can bet on it, Greg Clarkin, thanks very much. Microsoft and Intel today were hardly alone on the list of big- cap Nasdaq losers. Apple lost more than 4 12 points4. As for WorldCom, down more than a point. And fiber-optic hotshot, JDS Uniphase tumbled more than 4 12, but it is rallying in after-hours trading. And chip-maker, PMC-Sierra plunged more than 18. Now, to the Dow industrials; lower today as well. But there were some notable winners there; Disney, for example4. Citigroup up more than a point after beating the street with profits. And Philip Morris was up 1 14. As for Procter & Gamble2 today. Now, if today's reaction to those tech profit reports was any indication, investors could be in for another rocky ride tomorrow. After the bell, IBM, beat second-quarter estimates by six cents a share. But like Microsoft, sales growth left a lot to be desired. Still, IBM shares jumped more than 5 12 points in active, after-hours trading. Bruce Francis has been crunching the numbers and he joins us now with the very latest Bruce.
[Bruce Francis, Cnn Correspondent:] Stuart, for this quarter, expectations were low, since many companies tied to mainframe computer had posted disappointing results. Still, Big Blue pulled off a big surprise with earnings that were better than expected. But on a conference call, the company wasn't boasting.
[Francis:] IBM said goodbye to a quarter to forget by turning in better-than-expected results. Cost-costing and a sought buy-back helped the company turn in net income of $1.06 cents a share, six cents better than expected. And profits increased over "99, if you factor out a special gain last year. But it wasn't because Big Blue sold more computers. In fact, overall, revenues were light by analysts" estimates and fell 1 percent from a year ago.
[Shebly Seyfafi, Ag Edwards:] They have generally been doing both, cutting expenses and buying back shares to engineer better bottom-line results. But we really need to see that top line grow, not only from the server category, but also from the technology area.
[Francis:] IBM found little to brag about in the quarter. PCs, which have been a drag on earnings for years, improved somewhat, but the company says it remains dissatisfied with the results. But IBM did note that the services business, plagued by a post-Y2K slowdown, reignited late in the quarter. In a statement, IBM's Louis Gerstner said: "Our outlook going forward is quite different from the one we faced in last three quarters and we continue to be very encouraged about the second half of this year." Shareholders could use some encouragement, too. The stock is down more than 22 percent from its high this year. On a conference call with Analysts, IBM says that the bloodletting in PCs should end this year, as early as the current quarter. But the company isn't raising the bar. Officers told analysts to stick with their current estimates for the second half of the year. And Stuart, that's for double-digit growth, but not a big change in the story there.
[Varney:] Fair enough, Bruce Francis, thank you. Well, the tech profit parade didn't stop at IBM. After the closing bell, Advanced Micro Devices also released its latest report. The chip-maker reported second-quarter results of $1.21 a share, seven cents higher than expected. AMD also announced a two-for-one stock split. However, in after-hours trading, its stock lost nearly 1 12, after jumping nearly four points during the regular session. Then we have Qualcomm, down more than two points in active trading. The telecom equipment-maker met estimates on 27 cents a share. But revenue came in at $714 million, and that was weaker than expected. Exodus Communications up more than two points in late trading8 in after-hours trading. It met already-lowered profit estimates of 10 cents a share. Immunex gained one-quarter point in late trading. It beat earnings forecasts by a penny on strong sales of its rheumatoid arthritis drug. But the big story in after-hours trading is JDS Uniphase, up 16 14. Late today S&P; said JDS replace will replace Rite Aid on the S&P; 500 index. So, where are corporate profits headed in the second half of the year? My next guest is not too enthusiastic. Abby Joseph Cohen of Goldman Sachs says third- and fourth-quarter profit growth will be below that of the first six months. Her outlook for the markets: no change in her forecast for the S&P; 500. The Wall Street bull is still forecasting 1575 by the end of the year; no change for the Dow industrials, 12600 by the end of 2000, a gain of nearly 18 percent from blue chip average currently stand. Joining with more on all this is Abby Joseph Cohen U.S. market strategist at Goldman Sachs. Abby, welcome back to
[Moneyline. Abby Joseph Cohen, Goldman Sachs:] Thank you, Stuart.
[Varney:] Is it conceivable, that, as far as Nasdaq is concerned if you're right, if it closes at 1575 on the year this would be the worst year for the Nasdaq since the early 1990s.
[Cohen:] We don't do any specific work on the Nasdaq, Stuart. But clearly, I think the broader market indexes will have good year, but not a great year. It's a year in which returns will be close to normal averages, as will volatility. And most investors are not accustomed to that.
[Varney:] It sounds like you're suggesting that technology when we look at the year as a whole will not shrine like older industrial companies.
[Cohen:] I think technology will do very well fundamentally. The earnings that are being reported are quite good. What is happening, however, is that the level of surprise positive surprise is much smaller than it was earlier in the year. Let's keep in mind that, in the first quarter, almost 80 percent of the technology companies in the S&P; 500 reported earnings above expectations; and that on an average of 18 percent above expectations. Now that technology companies are reporting good results, but not staggeringly good results, some of the stock prices are responding to that.
[Varney:] The thinking the chain reaction of thought, then, is that the economy is slowing because rates are rising. The Fed may raise rates some more. As the economy slows, profit levels profit margins come down. And that's where you get the profit outlook from?
[Cohen:] Well, there is concern that that is happening. Also keep in mind, there are some statistical phenomena at work. For example, the second half of 1999 was much stronger than the first half of 1999. So the year-on-year comparisons which what we use arithmetically for earnings get tougher as year goes on. By way, the deceleration in profit growth that we expect is not necessarily a bad thing on the intermediate and long-term outlook for the stock market. Stock prices usually do quite well with moderate profit growth as long as investors believe that that profit growth is durable. And over the next period of time, we think investors will regain that confidence, which is why we think stock prices will be rising before year-end and into the first half of 2001.
[Varney:] So if you were putting fresh cash into stock market right now, most of it would not go into technology.
[Cohen:] I would be looking for some of the areas that have suffered from benign neglect until recently. That would include some financial services stocks, including some of the banks that are performing quite well as companies, and yet their share prices remain stuck in the quagmire. We would also be looking at selected drugs and pharmaceuticals, biotech names, good-quality research companies, where the stock prices have not kept pace with what the companies have done. We see good values in many different sectors, including small and mid-cap stocks. We think there's also still good value left in the real estate-related securities.
[Varney:] All right, Abby Joseph Cohen, Goldman Sachs, always a pleasure, and thanks for being with us again.
[Cohen:] Thank you.
[Varney:] Still to come on MONEYLINE, CNET goes shopping on the Web and places its biggest purchase ever. The new media company buys its older online competitor, Ziff-Davis. Apple Computer unveils its latest version of the iMac. Chief executive Steve Jobs joins us with the new product and talks about his company's latest profit report. Plus, a financial house cleaning at Bank One. Jamie Dimon reveals his turnaround plans for the troubled bank and more, when MONEYELINE returns.