Stocks Tumble After Tuesday’s Run-Up

So much for the Alan Greenspan rally.

Stocks slumped Wednesday, failing to follow through on Tuesday’s big rally, as another round of profit warnings from major companies triggered renewed selling by nervous investors.

The earnings woes helped the Treasury bond market, however, as more investors ran for cover. Yields fell sharply.

On Wall Street, the Dow Jones industrial average gave up 234.34 points, or 2.2%, to close at 10,664.38.

The slide took back two-thirds of Tuesday’s 338.62-point Dow gain posted after Federal Reserve Chairman Greenspan strongly hinted that the central bank is prepared to cut interest rates in 2001.

The Nasdaq composite index fell 93.30 points, or 3.2%, to 2,796.50 on Wednesday, surrendering about a third of its record 274-point, 10.5% advance Tuesday.

Falling stocks outnumbered rising issues by about 17 to 12 on the New York Stock Exchange and by 24 to 15 on Nasdaq. Volume continued to be heavy.

The market was holding up well until Bank of America incited a wave of selling at midday by warning for the second time in a month that fourth-quarter earnings will be weaker than expected.

That report, combined with earnings warnings from retailer Circuit City and computer giant Apple, “brought us back to Earth,” said Hugh Johnson, chief investment officer at First Albany Corp.

Tuesday’s buying spree “was probably overdone,” said Barry Berman, head trader for Robert W. Baird & Co. “The presidential election hasn’t been resolved yet . . . and there is still uncertainty about earnings for next year,” he said.

Indeed, the corporate earnings “pre-announcements” are already on pace to hit a record this quarter, and most of the reports warn of weaker growth.

Although the Fed may well cut interest rates in 2001, “it’s not going to have a significant impact on the sales and earnings of companies for at least nine months,” Johnson said. “And during that period, we are going to have to slug our way through one report after another of companies telling us that their earnings are disappointing.”

George Pierides of Fox Asset Management Inc. in Little Silver, N.J., said the unfolding economic slowdown “didn’t change because of Greenspan’s kind words.”

For some nervous investors, the best answer seems to be to lock in current Treasury bond yields.

The Treasury market rallied strongly for a second day, sending yields lower, in the wake of Greenspan’s remarks Tuesday and fresh signs Wednesday of an economic slowdown.

The 10-year T-note yield slid to 5.32% from 5.43% on Tuesday, and now is the lowest since early 1999. Just two months ago, the yield stood at 5.81%.

The yield on 2-year T-notes fell to 5.43% from 5.49% Tuesday.

“Bonds and cash [will] be the favored investment going forward because damage has been done” to the stock investor’s psyche, said Steven Bohlin, a bond manager at Thornburg Investment in Santa Fe, N.M.

Corporate junk bond yields also pulled back Wednesday from recent eight-year highs. The yield on the KDP index of 100 junk bonds fell to 12.18% from 12.31% on Tuesday.

In other markets, the euro continued to advance against the U.S. dollar, rising to 89.2 cents from 88.1 cents. A rise above 90 cents would put the euro at its strongest level since August--and suggest that European investors are growing more wary of U.S. investments as the economy slows.

Among Wednesday’s highlights:

* Bank of America’s warning dragged its shares down $3.19 to $38 and pulled other bank issues down as well. Citigroup fell $1 to $49.75 after trading as high as $52.56. First Union lost $1.50 to $24 and Chase Manhattan lost $1.25 to $40.06 after rising as high as $43.25.

* Apple plunged $2.69 to $14.31 on its profit warning, which in turn hammered other computer stocks. Dell plummeted $2.25 to $18, Compaq slumped $4.30 to $20.10 and Gateway dropped $1.96 to $16.82.

* In the software sector, Microsoft lost $3.19 to $56.69, Adobe Systems slid $9.50 to $67.19 and Macromedia dropped $7.06 to $70.88.

* Among Internet issues, Yahoo plunged $6.38 to $37.50 after Merrill Lynch & Co. analyst Henry Blodget cut his first-quarter profit and revenue estimates for the Net’s most-used search directory.

In the networking sector, Cisco Systems eased 69 cents to $51.44, Lucent lost $1.69 to $15.13 and JDS Uniphase fell $2.50 to $65.63.

But Brocade Communications gained $1.17 to $191 and Alcatel rose $1.25 to $61.25.

* Drug stocks, recent market stars, were down sharply. Johnson & Johnson fell $3.38 to $96.13 and Astrazeneca slid $2.19 to $48.25.

* On the plus side, some entertainment issues gained. Walt Disney rose $1 to $31.44 and Viacom Class B shares rose 88 cents to $55. But Gemstar slumped $6.56 to $39.06.

* Some beaten-down telecom issues advanced, including AT&T;, up 31 cents to $20.69, and WorldCom, up 44 cents to $15.13.

Market Roundup: C7, C8