US stocks fall after McDonald's profit warning

A profit warning from McDonald’s discouraged US investors today, reminding them of the weak economy and prompting them to unload stocks.

Although there was some good economic news, investors still opted to take profits from a substantial advance in the previous session and from a two-month fall rally.

Analysts said some selling was to be expected, given the market’s recent gains and the fact that the earnings and economic recoveries investors are hoping for in 2003 are not yet assured.

The Dow Jones industrial average closed down 92.01, or 1.1%, at 8,535.39. The blue chips jumped 193.69 on Monday.

The broader market also retreated. The Nasdaq composite index fell 6.10, or 0.4%, to 1,394.23. The Standard & Poor’s 500 index declined 7.41, or 0.8%, to 902.99.

Ed Peters, chief investment officer at PanAgora Asset Management Inc in Boston, said: ”McDonald’s could have a negative impact. And things in the Middle East continue to sound worrisome, and that has some impact.”

Today’s batch of economic news was rather positive. The Federal Reserve reported that industrial production rose 0.1% in November, bouncing off a 0.6% drop in October and matching Wall Street’s expectations.

In another report, the Labour Department said consumer prices edged up 0.1% in November, the smallest gain since July and better than analysts had anticipated.

And in a separate report, the Commerce Department said construction of new homes rose 2.4% in November due to the lowest mortgage rates since the 1960s.

But the economic reports failed to overshadow negative news, including a fourth-quarter profit warning from McDonald’s, which sent the stock down 1.38 to 16.

Other losers included Best Buy, down 1.40 at 24 after beating third-quarter earnings expectations by penny a share but also projecting a flat fourth quarter.

Chip maker Micron Technology declined 21 cents to 13.28 ahead of earnings due to be released later tonight. Software maker Oracle fell 28 cents to 11.02 ahead of it earnings due to be reported tomorrow.

Despite today’s slippage, market observers said the mood on Wall Street remains upbeat and the market’s bias is to move up, not down.

“There is a good tone in the market,” said Michael Murphy, head trader for Wachovia Securities in Baltimore. ”To me (stocks) seem to want to go up. They had a big day yesterday, and they are hanging in pretty well today.”

Indeed, the market has held onto much of its autumn rally. After hitting a five-year low on October 9, the Dow is now up 18% from that point. The Nasdaq is up 25% and the S&P is up 17% from six-year lows established on October 9.

Declining issues outnumbered advancers about 8 to 5 on the New York Stock Exchange. Trading volume was light.

The Russell 2000 index, which tracks smaller company stocks, fell 3.65, or 0.9%, to 391.25.