Weak GDP Report Batters Stocks

Stocks tumbled Wednesday for a third straight session after the government reported that the U.S. economy’s second-quarter performance was its weakest in eight years.

Some analysts had feared the economy would be flat or even decline in the quarter. But investors weren’t comforted by the higher-than-expected revised reading on the quarter’s growth.

After weeks of dismal earnings and negative forecasts from some of the nation’s biggest companies, Wall Street took the report on the gross domestic product as just another reason not to buy.

“There is no faith that things are about to improve any time soon,” said Richard E. Cripps, market strategist for Legg Mason of Baltimore.

The Dow Jones industrial average closed down 131.13 points, or 1.3%, at 10,090.90, giving it a decline of 332 points, or 3.2%, so far this week. The blue-chip index closed at a level last seen in early April.

The broader market was also lower, with the Nasdaq composite index falling 21.81 points, or 1.2%, to 1,843.17, bringing its three-day loss to 73.63 points, or 3.8%.

The Standard & Poor’s 500 index fell 1.1% to 1,148.60, for a loss of 36.33 points, or 3.0%, so far this week. The S&P; now is just 4.1% above its two-year low set April 4.

Four stocks fell for every three that rose on Nasdaq, while losers outnumbered winners 5 to 4 on the New York Stock Exchange. Volume was light.

What was bad for stocks again was good for bonds, as investors locked in yields on longer-term Treasury issues. The yield on the two-year T-note fell to 3.63% from 3.67% Tuesday. The yield on the 10-year T-note slid to 4.77% from 4.84% Tuesday. Treasury bond yields now are at their lowest levels in at least three years.

Stock investors were clearly disappointed by the Commerce Department’s report that the GDP--the country’s total output of goods and services--inched up just 0.2% in the second quarter.

Potential buyers stayed away from stocks on worries that business would remain weak in the near term, analysts said.

Among Dow stocks, Caterpillar fell 97 cents to $51.17 and 3M fell $2.55 to $106.75.

Retail stocks were mostly lower. Gap slipped 60 cents to $19.70 after Banc of America Securities reduced its rating on the shares.

Pessimistic outlooks from two technology bellwethers intensified the market’s bad mood.

Chip stocks slipped after Advanced Micro Devices warned that revenue this quarter probably would fall about 15% from the last quarter, compared with previous projections of a 10% to 15% decline. AMD fell 66 cents to $14.20.

Networking stock Nortel Networks fell 25 cents to $6.52 after WorldCom announced that it would cut its 2002 capital spending to $6 billion. WorldCom, which fell 53 cents to $12.44, is one of Nortel’s most important customers.

Meanwhile, Philip Morris, the biggest cigarette maker, fell 37 cents to $47.23 even though the company raised its quarterly dividend by 9.4%. The company also confirmed that Chairman and Chief Executive Geoffrey Bible would retire in August 2002 at the mandatory retirement age of 65.

On the plus side, Gateway inched up 19 cents to $8.79 after announcing a restructuring plan late Tuesday. And women’s clothing retailer Talbots also advanced, rising 89 cents to $37.94.

But analysts said Wednesday’s session mostly reflected the ambivalence that has come to characterize Wall Street amid unending indications of weak business and a struggling economy.

All three major stock indexes remain well below where they started 2001: the Dow is down 6%, the Nasdaq is off 25% and the S&P; is down 13%.

Two announcements after the market closed gave little hope of better news for stocks soon. Fiber optics maker Corning said it was cutting 1,000 more jobs because of a sudden slowing in orders across all fiber product lines. The stock was down 78 cents, or 5.3%, to $13.82 in after-hours trading.

And Sun Microsystems said it is unlikely it will break even in its fiscal first quarter because of soft business. In after-hours trading the stock dropped 83 cents to $12.60.

“We still have just no real reasons for people to be aggressive here,” said Todd Clark, co-head of trading at WR Hambrecht.

Market Roundup, C7, C8