Dow, Nasdaq Losses Cap a Roller-Coaster Week
Major U.S. stock indexes ended the first week of 2001 in the red after tumbling Friday on worries over sagging corporate earnings and the ongoing California utility crisis.
Combined with Thursday’s more moderate decline, the sell-off almost wiped out Wednesday’s historic rally, which followed the Federal Reserve’s surprise decision to cut interest rates by a half-point in an effort to jump-start the sputtering U.S. economy.
“People are rethinking how big of a bet they want to make on the economy recovering right away,” said Henry Herrmann, chief investment officer at Waddell & Reed.
The Nasdaq composite index plunged 159.18 points, or 6.2%, to 2,407.65, led by stalwarts such as top Web-gear maker Cisco Systems, which fell 12.5%.
The blue-chip Dow Jones industrial average lost 250.40 points, or 2.3%, to 10,662.01, weighed down by financial shares such as Citigroup, which fell $2 to $53.69. The broader Standard & Poor’s 500 index dropped 34.99 points, or 2.6%, to close at 1,298.35.
Losers outnumbered winners by a hefty 12-7 ratio on Nasdaq, where 2.1 billion shares were traded. On the New York Stock Exchange, losers outpaced winners 17 to 13 on active trading.
Nasdaq, despite its monster rally on Wednesday of 324 points, or 14.2%, ended the week down 2.5%. The Dow was off 1.2% for the week.
Rumors that Bank of America may be damaged financially by the mounting California utility crisis unsettled traders early in Friday’s session.
The bank issued a statement denying any significant losses and said its bad loans shouldn’t be any worse than it had previously forecast. But its stock lost $3.75 to $47.75, and investors dumped other financial stocks as well.
“The California power crisis is a big deal,” said Waddell’s Herrmann. “The politicians better get together to fix that one or . . . the ability of these [utilities] to finance themselves is going to go out the window.”
The market’s mood also soured as Wall Street’s top brokerages continued to hack away at earnings estimates for a wide array of bellwether names. Those included Dow components Hewlett-Packard, down $4 to $30.63, and General Motors, which fell $3.13 to $54.
A government report on December employment didn’t change investors’ expectations that the Fed will cut interest rates again later this month to bolster the economy.
The Labor Department said the economy created 105,000 jobs in December, while analysts surveyed by Bloomberg News projected a gain of 113,000.
The unemployment rate was unchanged at 4%, while analysts expected an increase to 4.1%.
Still, “the Fed’s moves in the next six months will not be enough to stave off a challenging year for corporate profits,” said Charles Crane, who helps manage $4 billion for Spears, Benzak Salomon and Farrell. He forecasts that profits for the S&P; 500 companies will rise 4% this year.
Analysts surveyed by First Call/Thomson Financial forecast a 9.2% increase. That’s less than the 15.5% analysts were forecasting in July. Nasdaq was weighed down by Internet infrastructure firms, issues still deemed to be trading at rich prices despite their battering last year. The S&P; computer networking index shed a whopping 12.7%, reflecting the losses by Cisco, down $5.25 at $36.63, and others such as Network Appliance, down $11.75 at $54.63--a loss of almost 18%.
Among Friday’s market highlights:
* Retail stocks took a hit after Nordstrom reported a drop in December same-store sales and lowered its fourth-quarter earnings outlook. Shares of the department store chain lost $1.50 to $18.88. And No. 1 retailer Wal-Mart Stores shed $2.25 to $53.94 after Robertson Stephens lowered its 2000 and 2001 earnings targets.
Borders Group lost 94 cents to $12 after the bookseller said fourth-quarter results would miss expectations because of weak holiday sales. The S&P; retail index was off 3.3% on the day.
* Bonds rallied as investors banked on another Fed rate cut and sought refuge from falling stock prices. The yield on the benchmark 10-year Treasury note, which moves in the opposite direction of the price, fell to 4.93% from Thursday’s close of 5.02%. The yield on the one-year Treasury bill fell to 4.63%, down from 4.85%.
* Industrial conglomerate Minnesota Mining and Manufacturing, a Dow component, fell $4.44 to $114.56 after Lehman Bros. cut its 2001 earnings estimate based on the slowing U.S. economy.
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Bloomberg News and Reuters were used in compiling this report.
