The weight of bad news broke the resolve of more Wall Street bulls Thursday, triggering a deep sell-off that pushed major indexes back to late-April levels.
The Nasdaq composite sank 77.59 points, or 3.7%, to 2,044.07, its weakest close since April 26 and a decline of nearly 60% from its record high reached March 2000.
The Dow Jones industrials tumbled 181.49 points, or 1.7%, to 10,690.13, and the Standard & Poor's 500 slid 1.8% to 1,219.87.
All three major indexes are again in the red so far this year. Nasdaq is down 17.3% year to date.
Losers swamped winners by more than 2 to 1 on both the New York Stock Exchange and Nasdaq in active trading.
Analysts said the continuing barrage of corporate earnings warnings has left many investors worried that a profit turnaround won't happen by year's end. That assumption had helped fuel the market's spring rally.
"There's always a percentage of players who don't get the message the first time around," said Hank Herrmann, chief investment officer at Waddell & Reed, an Overland Park, Kan.-based mutual fund company. "Now they're getting the same message everyone else got."
Kurt Stabel, chief investment officer of Street Asset Management in Corona del Mar, said: "I'm the proverbial optimist, and even I'm starting to get concerned. This looks a little like Japan--not that we're falling off the brink, too, but it takes time to turn around a giant economy."
The apparent collapse of the General Electric-Honeywell merger because of European objections also damped the market's mood.
Amid a still-weak economy, the Federal Reserve is expected to cut interest rates later this month for the sixth time this year. But some investors now say it won't be enough to compensate for earnings woes that have prompted nearly 500 companies to reduce already-lowered second-quarter profit estimates.
Warnings in recent days have sent some key stocks below the two-year lows reached in spring. A warning late Thursday from JDS Uniphase, the leading maker of fiber-optic communications products, sent the stock to $12.05 in after-hours trading, breaking through its two-year low of $13.73 set April 4.
For the Nasdaq 100, an index that includes JDS Uniphase and many other leading tech names, earnings now are expected to fall 50% in 2001 from last year.
"For technology, this is as bad a bashing as I've ever seen," said Joseph Kalinowski, equity strategist at Thomson Financial.
Of 483 negative company pre-announcements so far for the second quarter, 34.4% have come from the tech sector. By contrast, tech companies make up 23.2% of Thomson's universe of companies.
What troubles many investors is that tech stock valuations have remained high as earnings projections have in some cases fallen faster than share prices.
"There's a reasonable chance the Nasdaq 100 can make a new low," Herrmann said. "The mega-cap tech stocks are still darn expensive."
The Nasdaq 100 has a price-to-earnings ratio of about 80 based on analysts' 2001 earnings projections, according to Thomson.
But concerns about earnings extend well beyond tech. Food giant H.J. Heinz, for example, warned Thursday that a strong dollar--which undercuts income from overseas--and steep energy costs could continue to weigh on profits .
Other companies "are expressing optimism for the second half, but so far it's based on hope, not tangible evidence," Herrmann said, noting that economic data such as retail sales, technology orders and airline traffic remain uninspiring.
For the blue-chip Dow, a chunk of Thursday's loss was attributed to the 12% drop in Honeywell's stock, which plunged $5.16 to $37.10. Honeywell is one of the Dow's 30 stocks. Also, United Technologies, another Dow stock, fell $3.16 to $77.10 as some traders speculated that it might bid for Honeywell.
Meanwhile, some traders said the market was riled by trading related to today's quarterly expiration of key stock index futures and options contracts.
As Dennis Ferro, chief investment officer at Evergreen Funds in Charlotte, N.C., put it: "This is a bad news market and the bad news continues to come in a rainstorm. The only ray of sunshine is the Fed."
Still, he said, a larger-than-expected Fed rate cut at the central bank's June 26-27 meeting "could be the spark that starts a progression of good news." The Fed is expected to cut its key short-term rate a quarter percentage point, to 3.75%. But more downbeat economic data could mean a bigger cut, some say.
The Treasury bond market continues to bet on more Fed cuts: Yields were mostly lower across the board. The two-year T-note yield fell to 4% from 4.04% on Wednesday. It's now the lowest since 1998.
Among Thursday's highlights:
* In the tech sector, networking stocks fell on worries about a continuing sales slump. Cisco Systems fell $1.28 to $17.74 and Nortel Networks lost 45 cents to $10.60.
Other tech losers included Intel, down $1.45 to $27.61, and Siebel Systems, down $5.91 to $39.19.
* Blue chips down sharply included Boeing, off $1.93 to $63.56; International Paper, down $1.47 to $37; and Citigroup, off $1.28 to $48.61.
* Schlumberger skidded $3.32 to $56.90 after the oil-field services company said revenue from the business it formed after buying the British computer services firm Sema has been lower than expected.
Market Roundup, C6, 8
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More Red Ink
Thursday's stock market losses pushed many key market indexes back into the red so far this year. A sampling:
Pctg. change: Index 2000 2001 S&P; small-cap +11.0% +1.8% Dow indus. --6.2 --0.9 S&P; mid-cap +16.2 --1.4 NYSE compos. +1.0 --5.0 Wilshire 5,000 --11.9 --7.3 S&P; 500 --10.1 --7.6 Nasdaq compos. --9.3 --17.3
Source: Bloomberg News