Stocks Off Sharply in Jittery Market
With the 10th anniversary of Black Monday looming, investors on Friday seized on subpar earnings reports to hand the stock market one of its rockiest days in months.
The Dow Jones industrial average, after dropping 182 points during the day, struggled back to close at 7847.03, down 91.85, or 1.2%. For the week, the blue-chip indicator was off 198 points, or 2.5%.
Things got even rougher in the technology-heavy Nasdaq stock market, where the composite index fell 32.81 points, or 1.9%, Friday to close at 1666.85. At one point in mid-afternoon, the index had lost more than 53 points in one of its sharpest sell-offs ever. For the week, Nasdaq was down 72.15 points, or 4.1%.
Investors dumped tech issues after several leading firms reported earnings that fell short of expectations.
“There’s very little tolerance for earnings disappointments,” said Alan F. Skrainka, chief market analyst for Edward D. Jones & Co. in St. Louis.
Sun Microsystems Inc., for example, fell $3.94 to $38.38 on heavy trading of 40 million shares on Nasdaq. The company said the strong dollar had hurt overseas sales.
Disk-drive maker Seagate Technology, its earnings hurt by currency losses, plunged $5.94, or almost 16%, to $32 on the New York Stock Exchange.
“Anything in a report of a bellwether like Sun or Seagate that portends a less rosy future is a real problem,” said David DiPietro, managing director of equity capital markets at Alex. Brown & Sons in Baltimore.
Friday’s jittery session was the last trading day before the 10th anniversary of the Dow’s 508-point, 22% plunge on Oct. 19, 1987, but market watchers downplayed its influence.
“Only children should pay attention to things like birthdays and anniversaries,” Skrainka said.
A more tangible factor in Wall Street’s unease was a fear that a too-strong economy could rekindle inflation and cause the Federal Reserve to push interest rates higher.
Elaine Garzarelli of Garzarelli Capital Management said of the market’s nervousness: “I think it’s totally Greenspan.”
Last week, Federal Reserve Chairman Alan Greenspan warned that the economy has been on an “unsustainable track” and that a tight job market is likely to push labor costs upward. His remarks sparked an 83-point drop in the Dow the next day.
Greenspan was deliberately trying to “keep the markets from blasting off,” said Garzarelli, who expects the Dow to stay in a “trading range” between 7000 and 8500 for the foreseeable future.
It should be noted that even after this week’s skid, the Dow is still up nearly 22% this year.
The bond markets, always jumpy about a resurgence of inflation, finished the week with a sell-off. Bonds tumbled on news of a sharper-than-anticipated rise in housing starts and industrial production figures. This was despite a tame inflation report on Thursday.
The Treasury’s 30-year bond fell $6.25 per $1,000 of face value, driving the bellwether’s yield up to 6.44% from 6.39%.
Rising interest rates hurt corporate profits, so that concern, added to the earnings disappointments, sent the stock market tumbling.
“It’s a combination of small negative influences coming together at once to create one big negative influence,” said Tony Dwyer, chief market strategist at Ladenberg Thalmann.
What seemed to cause stocks to rebound from afternoon lows Friday was news that a deal was within reach in the maritime dispute between the United States and Japan.
The United States had earlier said it would bar Japanese ships from U.S. ports after Japanese shipping companies failed to pay some $4 million in fines that were due.
Analysts said that with investors so sensitive to earnings, the next wave of reports could spark further trouble.
“It’s a little harsh to say we’re going to take a big header to the downside,” said Greg Nie, a technical analyst with Everen Securities in Chicago. “But this was not a good day. It could be the first step toward establishing a down phase.”
For the day, the Standard & Poor’s 500-stock index fell 11.06 to 944.17, halving an earlier loss of more than 23 points; and the NYSE composite index fell 5.74 to 496.56.
Once again, the selling spread to the high-flying small-company sector, which has been on a record-setting tear for more than a month.
The Russell 2000 index of smaller companies fell 7.87 to 449.29, its first four-session slide since early August. The American Stock Exchange composite index, which is dominated by smaller companies, fell 7.50 to 700.88.
Declining issues outnumbered advancers by a nearly 4-to-1 margin on the New York Stock Exchange, with 611 up, 2,332 down and 474 unchanged. Volume was heavy, with 623 million shares changing hands.
