Nasdaq, S&P; Plummet to 5-Year Lows
Blue-chip stocks led another heavy sell-off on Wall Street on Wednesday, driving key indexes to 1997 levels and the Dow Jones industrial average below 9,000 for the first time this year.
Analysts said the market’s latest decline reflects a growing investor disgust with mounting revelations of financial fraud, and concerns that even accurately reported corporate earnings won’t rebound fast enough to make stocks attractive.
“The emotion right now is one of despair, of paranoia that everything is going wrong,” said Subodh Kumar, investment strategist at CIBC World Markets in New York.
The Dow Jones industrial average tumbled 282.59 points, or 3.1%, to 8,813.5, the lowest close since Sept. 27.
The drop was even more pronounced in the Standard & Poor’s 500 index. It slumped 32.36 points, or 3.4%, to 920.47, falling to its lowest since November 1997.
The Nasdaq composite dropped 35.11 points, or 2.5%, to 1,346.01, the lowest since May 1997.
Part of the plunge in the S&P; index was a result of Standard & Poor’s announcement Tuesday that it will boot seven foreign-based companies from the index July 19, replacing them with U.S. companies. That triggered selling in the deleted stocks by investment funds that seek to mimic the performance of the index.
But investors were dumping more than just a handful of stocks Wednesday. Losers swamped winners by 3 to 1 on the New York Stock Exchange and by 2 to 1 on Nasdaq, in heavy trading.
News that federal investigators have launched a criminal probe into Qwest Communications Inc., and that a legal watchdog group had sued Vice President Dick Cheney, alleging accounting fraud at the oil services company he once led, deepened fears that the number of corporate scandals will continue to grow.
“Clearly what we are seeing is a confidence issue,” said Stuart Freeman, chief equities strategist at brokerage A.G. Edwards & Sons in St. Louis. “The fundamentals are turning [positive], but investors aren’t buying it. Just like it takes a string of bad news to break confidence, it takes a string of good news to bring it back the other way.”
Critics of the Bush administration said the market’s continuing slide suggests investors have little confidence in the white-collar fraud-fighting measures President Bush unveiled Tuesday morning. The Dow fell 178.81 points Tuesday, with most of that occurring after Bush’s speech.
But analysts said many investors are reacting more to the economic outlook, and questioning whether the expected rebound in corporate earnings this year will be significant enough to make stock valuations more appealing.
The drug sector, for example, was hammered again Wednesday, in part because of expectations that Congress will pass a bill that could speed generic competition for many drugs. That could depress earnings for some of the biggest companies in the industry.
Drug shares already were reeling after a government study Tuesday linked one of Wyeth’s key hormone-replacement drugs to health risks. Wyeth shares fell $1.55 to $35.75 on Wednesday after diving $11.94 on Tuesday.
Among other drug giants, Merck fell $2.18 to $43.57, Eli Lilly dropped $1.80 to $48.18 and Pfizer slid $2.07 to $31.03.
Electric utility stocks also were broadly lower Wednesday on doubts about the industry’s profit potential in the near term.
Prudential Securities analyst Carol Coale cut her 2002 earnings estimate for Duke Energy to $2.37 a share from $2.66 and downgraded the stock to “hold” from “buy,” according to Bloomberg News. The stock slumped $3.06 to $26.
Other utilities down sharply included TXU, off $4.99 to $42.77; Southern California Edison parent Edison International, down $1.52 to $13.49; and Public Service Enterprise, off $3 to $36.14.
The Dow Jones utility stock index fell 5.9% to 237.99, its lowest since 1997.
Despite concerns about earnings, second-quarter profit reports of blue-chip firms overall are expected to show a year-over-year increase, according to earnings-tracker Thomson First Call. In fact, fewer companies than normal have warned that results will miss expectations, the firm said.
But that apparent good news isn’t registering with many investors.
In other trading Wednesday, Treasury bond yields fell further as investors fled stocks. The 10-year T-note yield dropped to a seven-month low 4.61%, down from 4.73% on Tuesday.
The dollar, however, firmed against the euro despite stocks’ woes. The euro eased to 98.9 cents from 99.4 cents.
European stock markets are facing their own deep sell-off: The German market slid 4.1% Wednesday, and the British market dropped 2.7%.
In other highlights:
* GM and Ford helped pull blue chips lower after Banc of America Securities downgraded the stocks and cut 2003 earnings estimates on concerns about higher costs for improved warranty programs. GM fell $3.53 to $47.61 and Ford lost $1.12 to $13.99.
* Viacom class A shares tumbled $4.71 to $36.10 on worries that advertising spending might be weaker than expected.
* Bank stocks fell across the board. Citigroup lost $1.02 to $36.55 and PNC Financial was off $2.40 to $46.52.
Market Roundup, C7-8
