Dow 10K Fizzles and Frustrates as IBM Plunges
Blame it on Big Blue.
An analyst’s warning of slowing sales at IBM caused that bellwether stock to plunge Friday afternoon, dragging the Dow Jones industrial average down with it.
For the third day this week, the Dow failed to hold the 10,000 level, turning early ebullience on Wall Street into frustration.
“I wish they’d just put us out of our misery,” said Charles Blood, market analyst at Brown Bros. Harriman, referring to the Dow 10,000 tug-of-war.
“There is exhaustion because of the mental strain of trying to beat that number,” agreed Joseph Cangemi, a floor trader on the New York Stock Exchange.
Unlike on Thursday, when the Dow closed near its high for the day and just 3 points shy of 10,000, the index slumped in the last half-hour of trading Friday, as if investors gave up trying. The Dow finished at 9,903.55, down 94.07 points, or 0.9%.
The broader market was weak all day on fresh concerns that technology company profit growth is slowing. The Nasdaq composite index fell 41.69 points, or 1.7%, to 2,421.27.
The bond market offered no support, as Treasury yields posted their biggest jump in two weeks on speculation about AT&T;’s monster bond sale plans. The phone giant’s planned $6-billion bond deal reportedly has been oversubscribed, prompting speculation that AT&T; will expand it, perhaps topping MCI Worldcom’s record $6.1 billion bond sale last year.
Fear that investors might dump Treasuriers to buy AT&T; bonds sent the 30-year T-bond yield to 5.54% from 5.49% Thursday.
Friday’s late fizzle in the stock market was disappointing to many traders because at the opening bell, the market seemed ready to cruise through Dow 10,000 and for the first time close above that milestone.
In the first half-hour of the session the Dow spurted nearly 90 points to peak at 10,085.31.
Friday was a “triple witching day,” one of four days a year when stock options and market-index options and futures expire simultaneously. Such days can have big surges in volume and unpredictable price swings as traders settle market bets.
Analysts thought the strong opening, in part a function of the expirations, might be matched by a strong close, but as the day progressed several concerns held the market back, including the weakness in tech shares, the sour bond market and rumors--quickly denied--that Treasury Secretary Robert E. Rubin was resigning.
“What we’re seeing is an accumulation of problems weighing on the market,” added Blood of Brown Bros. He cited the rise in long-term interest rates in the last two months and the narrowness of the recent stock rally--the lack of participation by more than a handful of big, well-known issues.
The capper for Friday’s rally came around 2 p.m. Eastern time when news spread that analyst Thomas Kraemer of Morgan Stanley Dean Witter had reduced his 12-month forecast for IBM’s share price to $195 from $210. Kraemer told his brokerage’s sales force in a conference call that IBM’s mainframe computer sales won’t meet expectations.
Big Blue was already down for the day, but Kraemer’s call pushed it down more and caused waves throughout the market.
“IBM’s swing to the downside threw the Dow Jones off track,” Cangemi said.
As news spread of the thumbs-down on IBM, the Dow slid from around 10,010 to 9,955 in 15 minutes of trading.
For the day, IBM dropped $9.06 to $168.56. By itself, it accounted for 40 points of the Dow’s decline.
Overall, losers topped winners by 3 to 2 on the NYSE in heavy trading.
Among other stocks on the move, Nike surged $6.75 to $61.75 on the heels of a brisk earnings report, while Cambridge Technology Partners tumbled $9.63 to $11.38 after the firm warned of falling profit.
For the week, the Dow rose 0.3%, the S&P; 500 gained 0.4% and the Nasdaq composite advanced 1.7%.
Some experts thought Friday’s downward momentum might continue. “Obviously, there will be some more selling coming through Monday morning,” said Rao Chalasani, chief investment strategist with Everen Securities in Chicago.
Earnings fundamentals have warranted a rise to Dow 10,000 but not beyond that, Chalasani said.
Scott Marcouiller, analyst at A.G. Edwards in St. Louis, said he expects a temporary setback Monday but believes the Dow will close above 10,000 “in a matter of days.”
The economy is still strong, he said, and Federal Reserve Chairman Alan Greenspan, in speeches Friday and earlier in the week, calmed fears that the Fed might be poised to raise the short-term interest rates it controls.
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Times staff writer Walter Hamilton contributed to this report.
Market Roundup, C4
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Blue Friday
IBM’s stock fell more than $9 a share Friday after an analyst warned of slowing sales. Big Blue’s descent was blamed for knocking the Dow Jones industrial average further away from the 10,000 mark it’s been flirting with. Weekly closes and latest on the NYSE:
Sept. 4: $119.38
Dec. 24: $187.94
Friday: $168.56, down $9.06
Source: Bloomberg News
