Stocks Extend Sell-Off as Profit Woes Continue

Fear punched out greed again Friday to extend the stock market’s sell-off, as concerns about lower corporate profits--especially in the volatile technology sector--continued to dissuade investors from aggressively buying stocks even at their lower prices.

Some analysts took solace from the relentless drop in many of the market’s marquee stocks, on grounds that the selling pressure appears close to bottoming out and could be setting the stage for a fourth-quarter rally. But others were less sanguine, arguing that the selling hasn’t been intense enough to mark a bottom.

On Friday, the Dow Jones average of 30 industrial stocks tumbled 128.38 points to 10,596.54, leaving the blue-chip measure with a 7.8% loss for the year so far.

The technology-laden Nasdaq composite index skidded 111.09 points to 3,361.01, its biggest loss since July 28. The index has now declined in 10 of the last 12 sessions and has plunged nearly 1,688 points, or 33%, since peaking at 5,048.62 on March 10.

The Standard & Poor’s 500 index slipped 27.29 points to 1,408.99. It marked the fifth week in a row that the Nasdaq, Dow and S&P; 500 have all lost ground. The last time that happened was in April 1997.

Stocks of companies in the hot field of fiber-optic networks were among the big losers, as were other telecommunications-related issues. Brokerage stocks also fell, as did shares of home-improvement retailers after Lowe’s Cos. disclosed disappointing sales growth in the current quarter.

It didn’t help the market that the government Friday reported an unexpected drop in the U.S. jobless rate for September to 3.9%--matching a three-decade low--from 4.1% in August. Economists expected the rate to hold steady last month, and its decline stoked fears that the economy remains so strong that it could spark higher inflation.

But others discounted the economic news. “You can’t blame this morning’s unemployment report for what we’re seeing going on in the markets,” said Charles White, portfolio manager at money-management firm Avatar Associates.

Rather, White and others again placed most of the blame on the growing string of disappointing forecasts for third-quarter earnings that have come from scores of companies, especially those in the technology sector. Technology stocks, which traded at relatively high prices earlier this year, are particularly vulnerable to the reduced expectations and have taken the brunt of the selling.

Announcement of corporate earnings should start in earnest next week, and investors will be watching closely to see whether the results spark even more selling or lay the foundation for renewed confidence in stocks.

“Usually what you’re looking for as you get to some kind of bottom is people capitulating with these stocks,” said A. Marshall Acuff Jr., equity strategist at Salomon Smith Barney Inc. “They get sufficiently nervous that they don’t want to hold or buy even the good ones, and you’re starting to get some of that.”

That’s a good sign, he said, because “once we get into the earnings season and we see some good earnings, that should start to bolster confidence” among investors, Acuff said. “So I wouldn’t lose my head in a period like this.”

Thomas Galvin, equity strategist at Donaldson, Lufkin & Jenrette, said the market could still “have a strong fourth-quarter rally. A lot can change in the next 90 days.” But he conceded that “we need to get some confidence that the earnings slowdown isn’t a tragic one.”

But other analysts said the selling pressure, especially among Nasdaq stocks, is by no means over.

“People are still too calm for a real bottom; Nasdaq fans are still in denial despite the recent woes” with technology earnings, said John Skeen, portfolio strategy director at Banc of America Securities.

He said indicators of market sentiment underlie his point, such as the put-call ratio, which measures the number of stock-option puts--which are a bearish technique to profit from stock declines--with option calls, which are bullish. The ratio shows “people just aren’t bearish enough yet” to clear out all the selling pressure, Skeen said.

Friday’s decline came amid strong volume, with 1.37 billion shares changing hands on the New York Stock Exchange. Advancing issues led decliners by more than 2 to 1 on both the NYSE and the Nasdaq Stock Market.

Among Friday’s highlights:

* Lowe’s stock fell $1.31 a share, to $40.81 after its sales announcement, which helped Home Depot lose $2.69 to $51.06.

* Losers in the fiber-optics and telecommunications group included Corning, down $6.50 to $90.44; Vodafone, off $2.19 to $35.75, and Nortel Networks, down $4.44 at $62.31.

* Veeco Instruments plunged $34.97, to $67.56 a share, after the maker of tools for testing computer chips cut by nearly half its earnings forecast for the second half of this year.

*

Times wire services were used in compiling this report.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Downdraft

The Dow industrials, S&P; 500 and Nasdaq all fell Friday, capping a fifth straight losing week. Except for a few bright spots, most major indexes are down for the year.

*--*

Friday’s % YTD % Index change change Dow utilities +1.0% +33.8% Dow industrials -1.2 -7.8 S&P; 500 -1.9 -4.1 Philadelphia gold & silver -2.3 -32.3 Russell 2000 -2.3 -2.7 Nasdaq computer -2.5 -16.8 Nasdaq composite -3.2 -17.4 Interactive Week Internet -3.5 -18.5 S&P; financials -4.2 +17.3 Nasdaq telecom -4.7 -34.3

*--*

Source: Bloomberg News