Market’s Decline Broad, Deep
Investors’ mood went from bad to worse Monday, as they ignored some upbeat corporate earnings reports and dumped big and small U.S. stocks alike.
The selling also intensified in many foreign markets that had been holding up well in the face of last week’s Wall Street rout. And the bond market offered no solace, as Treasury yields rose late in the day.
On Wall Street, the Dow Jones industrials slumped 161.05 points, or 2.9%, to 5,349.51 as losers swamped winners by 2,149 to 440 on the New York Stock Exchange.
In the Nasdaq market of mostly smaller stocks, the composite index dove 43.30 points, or 3.9%, to 1,060.19.
It was the eighth-worst one-day percentage decline ever in the Nasdaq index and the deepest since November 1991.
Trading volume, however, was far from record levels on either the NYSE or Nasdaq. But that was little consolation to analysts, who warned that the market may just be setting up for a massive sell-off on huge volume.
“This has gotten to be a little more than an orderly retreat now,” cautioned Larry Rice, trader at Wedbush Morgan in Los Angeles.
Analysts said investors returned from the weekend in a mood to sell after last week’s market decline that was triggered by some poor second-quarter corporate earnings reports. The market’s latest sell-off began July 5, when bond yields jumped on news of strong job gains for the economy in June.
The double whammy of weaker-than-expected earnings and higher interest rates has simply become too much for the aging bull market to handle, many experts say.
On Monday, investors couldn’t get excited even by healthy earnings reports from companies such as Coca-Cola, which said quarterly profit was up 17%. Coke’s shares slumped 1 5/8 to 45 1/2.
“Stocks are simply not reacting to good news and are being killed by bad news,” said Ricky Harrington, analyst at Interstate/Johnson Lane in Charlotte, N.C.
Meanwhile, the bond market began to sell off late in the day, pushing yields up and deepening the gloom. The yield on the benchmark 30-year Treasury bond rose to 7.07% from 7.03% on Friday.
Concern that Federal Reserve Board Chairman Alan Greenspan will hint in congressional testimony Thursday that there is reason for the central bank to tighten credit may have encouraged some bond investors to sell, said Todd Speiser, a trader at Aubrey G. Lanston & Co. in New York.
In foreign trading, Wall Street’s ongoing losses drove many other markets lower. Mexico City’s Bolsa index plummeted 93.43 points, or 3.1%, to 2,916.55. London’s key index lost 0.8%. And in Tokyo at midday today, the Nikkei-225 index was off 1.7%.
On Wall Street, some analysts said the collapse of many smaller U.S. stocks in recent weeks has become an especially bitter pill for investors and one they are not likely to soon forget.
“A lot of people thought smaller stocks were going to make them rich late in the bull market cycle,” said Glen King Parker, publisher of Market Logic newsletter in Deerfield Beach, Fla.
Many experts say Monday’s market action gave no hint that the selling was drying up, but rather that more is likely to come, especially if mutual fund investors begin to sour on stocks in large numbers.
Many funds are declining more sharply than blue-chip indexes such as the S&P; 500 because the funds are loaded with smaller stocks.
Among Monday’s highlights:
* The technology sector was hammered anew, after Applied Materials warned of disappointing earnings. Applied fell 2 5/8 to 25 3/8. Other losers included Intel, down 2 1/8 to 69 1/8; Micron, down 2 3/8 to 19; IBM, off 4 7/16 to 90 7/8; and Cisco Systems, off 3 1/2 to 51 7/8.
* Eastman Kodak, expected to report earnings today before the market opens, dropped 4 to 67.
* Weak earnings reports for Goodyear Tire & Rubber and CPC International led to declines. Goodyear fell 1 3/8 to 44 1/8; CPC, maker of Hellmann’s mayonnaise and Skippy peanut butter, dropped 2 to 68 1/2.
* Jacobs Engineering sank 3 3/8 to 22 after reporting quarterly earnings up 21%.
* Airline stock plunged on news of new fare wars. AMR, parent of American, lost 3 3/8 to 79 5/8; Southwest fell 1 1/8 to 25; Delta sank 3 1/2 to 75.
In currency trading, the dollar fell against the yen after a newspaper article revived concern that the Bank of Japan will raise interest rates soon.
The Bank of Japan might raise its official discount rate to 1% from a record low of 0.5% by the end of the month, according to a report in Japan’s Yomiuri newspaper, Japan’s largest-circulation daily.
* MAIN STORY: A1
* CRASH COURSE?
Analysts wonder if a 1987-style crash looms. A1
* INVESTOR SPOTLIGHT
How stock mutual fund assets have ballooned. D9
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How Major Funds Fared
A look at the percentage declines in shares of some major stock mutual funds on Monday. NAV is net asset value per share.
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Monday Monday Fund NAV drop PBHG Growth $23.87 -5.4% Brandywine 27.88 -4.0 AIM Weingarten 17.80 -2.8 Schwab 1,000 17.37 -2.6 Fidelity Value 50.89 -2.3 Janus 24.00 -2.3 Investment Co. of America 21.90 -2.2 Washington Mutual 22.28 -2.1 Fidelity Magellan 71.23 -2.1 Vanguard Windsor 14.85 -1.6 Average stock fund -2.8 S&P; 500 stock index -2.6
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Source: Lipper Analytical Services
