Wall St.’s Pain Worsens and Spreads
Monday’s U.S. stock market sell-off began hours earlier in Asia and then gathered momentum around the globe, time zone by time zone, before hitting Wall Street like a snowball rolling down a hill.
On almost every bourse, the worry was the same: The world economy is increasingly at risk because of the slowdowns in the United States and Japan.
“This is death by a thousand paper cuts. Every day, most sectors of the equity market are off 1 to 3 to 5%,” said Gary Pzegeo, bond fund manager at Evergreen Investment Management Co. in Boston. “The market is coming to grips with poor [corporate] earnings and a horrible fundamental environment.”
In Tokyo, the benchmark Nikkei average plunged 3.6% on Monday to a 16-year closing low after skepticism over the ruling coalition’s economic package and Friday’s U.S. market swoon overwhelmed better-than-expected gross domestic product data.
The Nikkei closed down 456.53 points at 12,171.37--its lowest close since April 1985--and markets in Hong Kong and elsewhere in Asia followed suit.
The sell-off in Tokyo was continuing in early trading today, with the Nikkei down 283 points to 11,889.
When markets opened in Europe on Monday morning, a profit scare from telecom equipment titan Ericsson combined with Friday’s bad news from U.S. tech bellwether Cisco Systems, feeding deep unease about a global tech-sector meltdown.
Stockholm-based Ericsson slid 21% after saying it expected a pretax loss in the first quarter instead of a result close to break-even. That sent European technology stocks plummeting.
So far, Europe has not suffered the same torrent of tech earnings warnings that has slammed the U.S. market, but Ericsson’s announcement lighted fears that the worst is yet to come.
“We’re in for a difficult month. There are going to be more earnings downgrades of this type as Euro techs see the kind of announcements which have been coming through in the U.S.,” said Simon Thorpe, senior technology analyst at UBS Warburg.
Also hurting European stocks was a 14% decline in the shares of London-based financial services company Prudential after it announced a $26.5-billion offer for American General Corp. in what would be the largest takeover in the sector. Investors took fright at the price tag, slashing $4.3 billion off the notional cost of the deal.
Among major European markets, German stocks fell 2.5% on Monday while the French market slid 2.4%.
On Wall Street, meanwhile, the day’s most important news was still last week’s profit warning from computer chip giant Intel Corp. as well as Cisco’s announcement that the company would slash as much as 11% of its work force.
The news, analysts said, underscored how sharp the reversal of fortune in the tech sector has been and raised questions about the U.S. economy’s ability to act as the engine for world growth.
Tech stocks were hammered anew. The Nasdaq composite index fell 129.40 points, or 6.3%, to 1,923.38. It handily sliced through the psychologically key 2,000 level on its way to its lowest close since late 1998.
But the selling went far beyond the tech sector. The Dow industrials plunged 436.37 points, or 4.1%, to 10,208.25, the lowest close since late October as all 30 stocks making up the blue-chip index fell.
Losers included Boeing, down $4.50 to $61; General Electric, down $4.21 to $39.60; 3M, down $4.61 to $111.80; and even Philip Morris, a recent market star. It fell $2.15 to $49.60.
The broader Standard & Poor’s 500 index fell 53.26 points, or 4.3%, to 1,180.16. The S&P; is officially in bear territory, down 22.7% from its closing high of 1,527.46 reached March 24.
Declining stocks led advancers by 4 to 1 on both Nasdaq and the New York Stock Exchange. But although trading was heavy, it was far from record levels.
“What we are seeing today is a lot more anxiety and capitulation in some respects,” said Henry Herrmann, chief investment officer at Waddel & Reed. “People are starting to get really worried. They are just selling.
More than 320 stocks hit new lows on Nasdaq, including Cisco, the top maker of networking equipment for the Internet, which dropped $1.81 to $18.81 in heavy trading. The stock slid to $18.38 earlier to its lowest level in more than two years, and the weakness hit the shares of rivals. Large Cisco supplier Jabil Circuit shed $2.70 to $20.80 after UBS Warburg cut its rating on the weakness in Cisco.
Adding to the sour mood, Ed Kerschner, UBS Warburg’s chief portfolio strategist, cut his 2001 earnings outlook for companies in the S&P; 500 by 3.5% because of a drop in manufacturing activity and cuts in corporate spending.
Investors also fretted about the economic problems in Japan, which could have a ripple effect on global markets, said Waddell & Reed’s Herrmann.
And there were lingering worries the Federal Reserve may not be aggressive in cutting interest rates after recent economic data, such as Friday’s jobs and payroll figures, came in somewhat stronger than expected.
Financial stocks, which would benefit from lower rates, suffered Monday. J.P. Morgan Chase slid $3.46 to $45.49, and Citigroup lost $2.03 to $47.10.
In the tech sector, Intel was down $1.69 to $27.75, Microsoft plunged $4.75 to $51.94, Juniper Networks fell $5.19 to $49.69, and IBM fell $3.80 to $95.49.
Meanwhile, plunging stock prices buoyed the bond market, helping Treasuries recoup the losses suffered Friday after the surprising jobs data. The yield on the benchmark 10-year Treasury note fell to 4.91% from 4.93% Friday.
But gold, usually a safe haven in times of crisis, got only a small lift. Near-term gold futures in New York added $1.50 to $272.30 an ounce.
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Market Roundup, C12-13
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The Bear Roams Worldwide
Stocks tumbled worldwide Monday as investors fled for safety amid U.S. stocks’ continuing losses and deepening woes in Japan’s economy and market. Most major markets now are officially in “bear” territory, meaning a decline of 20% or more from their peaks. However, a large segment of the U.S. market-especially small- and mid-size stocks-has held up far better than the tech-dominated Nasdaq composite so far.
Foreign Indexes
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Mon. Mon. Drop from Country/index close change 2000 peak Britain/FTSE-100 5,826.50 -1.5% -15.9% Brazil/Bovespa 15,527.26 -3.7 -16.9 France/CAC 5,242.40 -2.4 -23.1 Hong Kong/Hang Seng 13,776.72 -2.9 -25.1 Germany/DAX 6,046.56 -2.5 -25.7 Mexico/IPC 5,963.37 -4.9 -27.1 Canada/TSE-300 7,930.30 -2.5 -30.4 Japan/Nikkei 12,171.37 -3.6 -40.0 S. Korea/composite 545.05 -3.7 -47.0
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U.S. Indexes
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Mon. Mon. Drop from Country/index close change 2000 peak S&P; small-cap 209.38 -3.2% -10.0%* NYSE composite 605.97 -3.7 -10.6 S&P; mid-cap 478.13 -3.8 -12.8 Dow industrials 10,208.25 -4.1 -12.9 S&P; 500 1,180.16 -4.3 -22.7 Wilshire 5,000 10,849.61 -3.3 -26.5 Nasdaq composite 1,923.38 -6.3 -61.9
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* peak was reached this year
Sources: Times research, Reuters, Bloomberg News
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Dow’s Biggest Point Losses
The Dow Jones industrial average recorded its fifth-biggest one-day point loss Monday, though in percentage terms the 4.1% drop was far from a record.
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Point Pctg. Rank Date Close change change 1 4/14/2000 10,305.77 -617.78 -5.66% 2 10/27/1997 7,161.15 -554.26 -7.19 3 8/31/1998 7,539.07 -512.61 -6.37 4 10/19/1987 1,738.74 -508.00 -22.61 5 3/12/2001 10,208.25 -436.37 -4.10 6 10/12/2000 10,034.58 -379.21 -3.64 7 3/7/2000 9,796.03 -374.47 -3.68 8 1/4/2000 10,997.93 -359.58 -3.17 9 8/27/1998 8,165.99 -357.36 -4.19 10 8/4/1998 8,487.31 -299.43 -3.40
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Source: Reuters
