Investors Suddenly Turn Skittish, Put Brakes on Rally
A sharp late-day turnaround took the starch out of Wall Street’s latest rally Wednesday as concerns about the market’s dramatic post-September rally overshadowed upbeat forecasts from technology bellwethers Cisco Systems and Oracle.
Investors are questioning whether the market is due for a pullback after its massive surge off the three-year lows hit in the wake of the Sept. 11 terrorist attacks. The fourth-quarter earnings season heats up next week and should bring the worst quarterly performance since the last recession in 1990-91.
Investors had been content to funnel money into the market on bets for better results later in 2002, but now they are fretting that an economic rebound has already been baked into prices.
“The market’s running out of gas,” said Peter Boockvar, equity strategist at Miller Tabak & Co. “We’re entering earnings period, and they better be good, because the market expects that. Unless they’re dramatically better than expected, it’s going to be tough.”
The technology-laden Nasdaq composite index closed down 10.85 points, or 0.5%, at 2,044.89, after climbing 43 points. The blue-chip Dow Jones industrial average, up 120 points earlier, closed down 56.46 points, or 0.6%, at 10,094.09. The Standard & Poor’s 500 index fell 5.57, or 0.5%, to 1,155.14. It was the third straight losing session for the Dow and S&P; 500.
The broader market was only narrowly negative, with losers edging winners 16 to 15 on the New York Stock Exchange and 19 to 17 on Nasdaq. Trading was active.
There were varying explanations for the late sell-off. Some traders blamed reports that a U.S. military refueling plane, carrying seven Marines, crashed into a mountain in Pakistan while trying to land at a base used by U.S. forces fighting in Afghanistan.
“There are going to be more deaths,” said Ned Collins, a trader at Daiwa Securities America. “It’s just a constant reminder.”
In Chicago, some said Nasdaq futures traders became skittish on concerns that comments by Federal Reserve Chairman Alan Greenspan, scheduled for today, and the release in two days of December producer prices might roil markets. Greenspan also is scheduled to speak on economic policy Friday in San Francisco.
“In the face of Greenspan speaking and the [producer price index] on Friday, no one wanted to step out,” said Jack Broz, a trader with TeamNKO Ltd. at the Chicago Mercantile Exchange.
Dallas Fed President Robert McTeer added more pressure to the market in the early afternoon, saying that the central bank’s series of interest rate cuts, begun about a year ago, has been helpful in providing a base for recovery but that the central bank would have liked a bigger effect.
Cisco turned tail with the market, ending down 10 cents at $20.85 after holding gains through much of the day. Cisco said the outlook for growth in the economy and technology industry is still murky, but it expects to expand its market share and make several small acquisitions.
Oracle managed to hold onto gains, finishing up 98 cents to $16.73, while rival SAP rallied $3.22 to close at $36.44.
In other market news Wednesday:
* The yen rose from a three-year low after a Japanese government spokesman called the currency’s 9% fall against the dollar during the last two months “a bit rapid.” The yen rose to 132.66 to the dollar, compared with 132.74 on Tuesday.
* Gateway fell 98 cents to $6.71 after Moody’s Investors Service lowered the credit rating of the PC maker to “junk” status, citing concern that the company will lose sales and market share. Gateway fell 33% in two days. Other PC makers declined. Dell Computer lost 25 cents to $29.39 and Compaq Computer fell 49 cents to $10.80.
* Homebuilder Lennar rose $1.73 to $48.75, after saying earnings rose about 50%, beating estimates, as low interest rates bolstered demand for housing.
* Merrill Lynch rose $1.55 to $57.99. The biggest U.S. brokerage said it will take a $2.2-billion quarterly charge for about 9,000 job cuts, but Merrill said its restructuring is winding down and it has seen the worst of the downturn.
* Telecom companies fell for a second day. SBC Communications was off $1.57 to $38.17 and Sprint Corp.’s PCS Group fell $1.86 to $19.25. Their profits might not recover until 2004 as competition squeezes earnings, said Jaye Morency, money manager at David L. Babson & Co.
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Reuters and Bloomberg News were used in compiling this report.
