Jittery Investors Await Next Act of Bruised Nasdaq

Is Nasdaq-3,000 the bull market’s line in the sand?

Wall Street opens today with many investors focused on the fate of the technology-dominated Nasdaq composite index, which plunged 5.4% on Friday to 3,028.99--its lowest level in more than a year.

A drop below the 3,000 mark this week could further unnerve already-jittery investors, triggering another heavy selling wave in beaten-down tech stocks, some analysts fear. Nasdaq is now down 40% from its March record high.

Others, however, say the stock market is primed for a rally, the sparks for which could be the resolution of the presidential election, and the Federal Reserve’s meeting on Wednesday.

Early today in Asia stock markets plummeted on the heels of Wall Street’s steep losses on Friday. In Tokyo the Nikkei-225 index was down 426.27 points, or 2.8%, to 14,562.27 around midday.

Hong Kong’s Hang Seng index was down 3.2% around midday while Taiwan’s weighted index was off 4.9%.

The U.S. market’s slide on Friday, which also saw the Dow Jones industrial average fall 231.30 points, or 2.1%, to 10,602.95, stemmed in part from worries that the election stalemate could drag on indefinitely, analysts said.

But the market’s deeper problem is rising investor concern over decelerating corporate earnings growth, many pros say.

With the slowdown in the economy, analysts have been slashing fourth-quarter earnings estimates for the companies they follow, according to earnings-tracker First Call/Thomson Financial.

The average estimate for year-over-year earnings growth for the blue-chip Standard & Poor’s 500-index companies in the fourth quarter now is 11.4%, First Call said Friday. That is down from growth of about 18% in the third quarter.

Now, many investors are focusing on 2001, and the prospect for further slowing.

Personal computer giant Dell Computer helped fuel Friday’s tech selloff after it forecast that 2001 sales growth would fall to the 20% range, down from the 30% it had been expecting. Dell shares fell $5.38, or 19%, to $23.

Dell’s results may foreshadow deeper pricing cuts across the personal-computer sector, slashing PC makers’ earnings, analysts said.

“Essentially, Dell has priced aggressively, but its competitors have been slow to respond, hoping that things would stabilize if Dell hit its numbers,” said Bear Stearns analyst Andrew Neff. “However, it seems clear that Dell is unlikely to let up on pricing, which increases the odds of a price war.”

Those concerns will mean close scrutiny of tech giant Hewlett-Packard Co.’s earnings report this week. The company on Wednesday will report results for its fiscal quarter ended Oct. 31.

Meanwhile, Federal Reserve policymakers, meeting Wednesday, are expected to leave the central bank’s benchmark short-term interest rate unchanged at 6.5%. But the markets are hoping the Fed will announce it is removing its “inflation bias”--a change in sentiment that could signal that interest rate cuts are likely in 2001 to keep the economy from falling into recession.

Without good news from the Fed, some analysts fear that foreign investors, in particular, will use the presidential election stalemate as an excuse to sell U.S. stocks and bonds.

Foreigners, both companies and portfolio investors, have been pouring their money into U.S. stocks and bonds in recent years, hoping to catch a ride on the record-setting U.S. economic expansion and bolstering the U.S. dollar on the way.

But the squabbling over who gets the White House may be too much for foreign investors, some analysts say.

“I don’t believe in catastrophe scenarios, but the dollar flight risk is real,” said Barry Evans, chief fixed-income manager at John Hancock Funds.

International investors are already inching toward the exit, according to some market players.

“We are seeing European and Asian investors getting out of bonds and stocks and into cash,” said Charles Gradante, chief investment officer of Hennessee Hedge Fund Advisory Group.

But that flight isn’t yet showing up in the currency markets: The euro’s value against the dollar has remained around 86 U.S. cents for the last week.

Some U.S. portfolio managers believe the stock market is in better shape than the tech-heavy Nasdaq index suggests. What’s more, they note that, historically, November and December have been good months for stocks.

“The market itself wants to rally for seasonal reasons, and the fundamentals with the exception of tech stocks are pretty good,” said Robert Streed, portfolio manager with Northern Trust Co.

“I am still expecting a strong year-end rally to begin in a week or so,” mutual fund manager Louis Navellier told clients on Friday.