Nasdaq Closes at Five-Year Low
The bear market in technology stocks hit new lows Monday, as a fresh wave of selling drove the Nasdaq composite index to its weakest close in five years.
The broad market also was sharply lower on the first day of the third quarter, dashing hopes that investors might be ready to look past corporate scandals and focus on the improving economy.
The Nasdaq index, dominated by tech giants, plunged 59.41 points, or 4.1%, to 1,403.80. That eclipsed the closing low of 1,423.19 set on Sept. 21, in the aftermath of the terrorist attacks.
Monday’s close was the lowest for Nasdaq since June 10, 1997--which was long before talk of a “new economy” led by technology companies had become all the rage on Wall Street and Main Street.
Measured from its record high of 5,048.62 on March 10, 2000, the Nasdaq index has plummeted 72.2%. That is nearing the 75.8% decline in Japan’s Nikkei 225 index, measured from that index’s peak of 38,915 on the last trading day of 1989 to its low of 9,420 set in February of this year.
The Nasdaq loss so far trails the near-total wipeout of key U.S. stock indexes in 1929-32.
The Dow Jones industrial average lost 90% of its value in that period.
Tech shares were led lower Monday as trading in scandal-ridden WorldCom resumed on Nasdaq. WorldCom shares dived 77 cents to close at 6 cents on record volume of more than 1.5 billion shares. WorldCom’s volume accounted for more than half of Nasdaq’s total volume for the session.
Blue-chip indexes also were hammered but their losses were modest compared with Nasdaq’s. The Dow industrials fell 133.47 points, or 1.4%, to 9,109.79.
The Standard & Poor’s 500 index sank 21.17 points, or 2.1%, to 968.65, holding just a few points above its Sept. 21 low of 965.80.
Analyst said investors returned from the weekend in a selling mood, as doubts about the trustworthiness of corporate accounting--and corporate management in general--continued to weigh heavily on sentiment.
“Our nerves are going to continue to be tested until some of these scandals are resolved,” said Alan Skrainka, chief investment strategist with brokerage Edward Jones. “Our message to investors is patience and courage.”
Worries about possible terrorist attacks on July 4 contributed to the selling pressure, traders said.
But “these corporate scandals do more harm to the market than anything Al Qaeda is going to do,” said Scott Wren, equity strategist at brokerage A.G. Edwards & Sons.
“It’s a short seller’s paradise,” said Jack Francis, managing director and head of Nasdaq trading at UBS Warburg, referring to the bearish strategy of borrowing stock and selling, betting on lower prices.
The S&P; 500 index is down 15.6% year to date.
Big-name stocks falling sharply Monday included IBM, down $4.40 to $67.60; GM, down $2.63 to $50.82; and Johnson & Johnson, off $1.76 to $50.50.
Nasdaq was dragged down by continuing losses in its major tech names, including Intel, down 73 cents to $17.54; Cisco Systems, down 86 cents to $13.09; and Oracle, down 47 cents to $9.
Losers swamped winners by 24 to 11 on Nasdaq and by 21 to 11 on the New York Stock Exchange.
Within the Nasdaq 100 index--the biggest nonfinancial names on Nasdaq--96 of the stocks fell.
Biotech shares were particularly weak. The Amex biotech index slid 7.3% to 323.42, lowest since 1999. Major drug stocks also slumped. Eli Lilly lost $2.64 to $53.76 and Pharmacia dropped $1.25 to $36.20.
One of Wall Street’s more bearish investment strategists, Richard Bernstein of Merrill Lynch & Co., on Monday cut his 12-month forecast for the S&P; 500 to 1,050 from 1,200.
A rise to 1,050 would be an 8% gain from the S&P; index’s Monday close.
Bernstein said he cut his forecast in part because of “extraordinarily high” valuations on blue-chip stocks.
The market once again ignored upbeat economic news Monday: An index of manufacturing activity rose in June to its highest level since February 2000.
Also, industrial and consumer products giant 3M said its second-quarter earnings before one-time charges will be at least $1.33 a share. Analysts had expected $1.25. 3M cited higher sales in Asia.
3M shares jumped $4.40 to $127.40, returning the stock to where it traded in mid-June.
The manufacturing report helped bolster the dollar. The euro fell to 98.8 cents from 99.2 cents Friday, while the yen weakened to 120.02 per dollar from 119.66.
On Wall Street, some analysts say the majority of investors are paralyzed: Many don’t want to take losses on the depressed tech stocks still in their portfolios, and they don’t want to buy new stocks because they don’t trust Wall Street analysts or corporate accounting, Wren said.
Increasingly, he said, Americans are putting their money into their homes rather than in stocks.
“Consumers are out there spending their money; they just aren’t buying stocks,” Wren said. “They are choosing to buy a home and put the money toward a new front porch or a new pool.”
That is helping at least one stock sector: Home builders rose Monday even as the broader market fell. Lennar gained $2.10 to $63.30 and KB Home added 99 cents to $52.50.
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Market Roundup, C9-10
