Profit Taking Drives Broad Stock Decline
Stocks fell Wednesday as investors, wary even in the midst of their resurgent optimism, decided to cash in profits from a market that has rallied hard since early April.
The pullback, which had been anticipated, ended the Nasdaq composite index’s six-session advance, its longest winning streak since February 2000.
Nasdaq closed the session down 70.37 points, or 3.0%, at 2,243.48. The Dow Jones industrial average stumbled 151.73 points, or 1.4%, to 11,105.51.
The market’s broadest measure, the Standard & Poor’s 500 index, declined 20.33 points, or 1.6%, to 1,289.05.
The losses were predictable given the market’s recent advance. Nasdaq gained 231.93 points in the previous six sessions while the Dow advanced 384.27 points during the previous five trading days.
“After the good-size run-up we have had, you can expect some profit taking,” said Eugene G. Mintz, financial markets analyst at Brown Bros. Harriman. “Also, the Dow is bumping along near its old high, which is always a difficult point to penetrate.”
The Dow’s closing high is 11,722.98, reached Jan. 14, 2000.
Wall Street has been surging since early last month, primarily because of the five interest rate cuts made by the Federal Reserve this year.
Investors are growing increasingly confident the economy will strengthen by the end of 2001, which has prompted them to start buying stocks again.
“We are looking for the resurgence of a bull market. It probably has already started,” Mintz said.
Wednesday’s trading showed, however, that despite investors’ more positive outlook they are still cautious.
Companies are still suffering the effects of the economic slowdown, which analysts say will continue to put pressure on stock prices and in turn make investors hesitant about bigger commitments to the market.
“The market has moved like a bullet with very little economic justification for the rally,” said Alan Ackerman, executive vice president at Fahnestock & Co.
Both Ackerman and Mintz said politics were a minor contributor to the market’s downturn as senior aides to Sen. James M. Jeffords (R-Vt.) said he intends to abandon his party and become an independent. Such a switch would end GOP control of the Senate and could affect President Bush’s agenda, although it’s not likely to block the income tax cut favored by Wall Street, which was passed by the Senate on Wednesday and now must be reconciled with a competing House version.
Among technology shares, the makers of semiconductor equipment fell after the industry reported late Tuesday that customer orders in April dropped 41% from March. Applied Materials, the industry’s largest company, finished down $3.65 at $52.94.
Triquint Semiconductor fell $3.13 to $24.81 after Merrill Lynch reduced its 2001 and 2002 earnings forecast for the company.
Meanwhile, some of the blue chips’ biggest losses Wednesday were due to individual companies’ news, rather than investors’ overall worries about the economy or weak earnings reports.
DuPont fell $1.92 to $47.39 after the chemical products maker said its second quarter will be as challenging as the first, and that it cannot foresee when business conditions will improve.
Ford Motor dropped 19 cents to $25.79 after announcing it expects to cut 60,000 cars from production in the second quarter as it tries to build tire inventories. Ford said Tuesday it will cost $2.1 billion to replace the remaining 13 million Firestone Wilderness AT tires on its SUVs and trucks.
After falling sharply Tuesday, Merck dropped an additional $1.10 to $74 as investors again punished its shares after an article in Tuesday’s New York Times questioned the safety of its arthritis treatment Vioxx and also that of Celebrex, an arthritis drug made by Pharmacia and co-marketed by Pfizer.
Pharmacia fell 76 cents to $48.74, and Pfizer fell 49 cents to $43.55.
Gainers in Wednesday’s session included Coca-Cola, up 90 cents at $48.70, and Dell Computer, up 87 cents at $26.81.
Intuit advanced $2.20 to $33.35. The maker of financial software such as QuickBooks for accounting reported fiscal third-quarter results that topped forecasts.
TMP Worldwide climbed $2.18 to $60.03. The marketing-services company will replace CIT Group in the S&P; 500 on a date to be announced, S&P; said.
Managers who run portfolios that mimic the index will have to buy the shares. Tyco International is acquiring CIT.
Declining issues outnumbered advancers 2 to 1 on the New York Stock Exchange where trading was active, but down from Tuesday’s pace of 1.52 billion shares.
The Russell 2000 index, the barometer of smaller companies’ stocks, fell 9.87 points to 507.36.
Market Roundup, C7, C8
