Profit Doubts Send Stocks Down Again
Stock prices plunged again Monday on worries about the economy and corporate profits, driving the Nasdaq composite index to its first close below 1,600 since early October.
“Investors are trying to figure out whether Wall Street is a game of confidence or a confidence game,” said Al Goldman, chief market strategist for A.G. Edwards in St. Louis. “There is confidence in the economy, but confidence in financial statements and Wall Street is waning.”
The Dow Jones industrial average fell 198.59 points to 9,808.04, nearly a 2% drop. The Standard and Poor’s 500 index ebbed 20.76 points, or 1.9%, to 1,052.67, while the technology-heavy Nasdaq composite index fell 34.55 points, or 2.1%, to 1,578.48--pushing its year-to-date loss to 19.1%.
Losers swamped winners by 2 to 1 on Nasdaq and the New York Stock Exchange. The selling intensified as the day wore on and the major averages closed at or near their lows for the session. On the bright side, the selling came on relatively weak volume.
It was the third straight session in which Nasdaq’s loss has approached 2% or greater, and the 13th time in the last 16 trading days the widely followed tech barometer has closed in the red.
“What happened today was a continuation of what happened last week,” said Gerald Appel, president of Signalert in Great Neck, N.Y.
Tech stocks have been weighing on the market as investors fret that capital spending on technology won’t pick up any time soon. On Monday, bellwethers such as IBM, down $5.78 to $76, Microsoft, off 94 cents to $48.62, and Sun Microsystems, down 69 cents to $6.08, all lost ground. A key index of semiconductor stocks slumped 1.5% and the Amex index of telecom shares fell 3.3% to a new 52-week low.
Appel believes the S&P; index could fall an additional 10% and that even the brightest lights in this market are likely to get crushed along the way. Indeed, he expects small-cap value stocks--the one sector that’s held up fairly well--to tumble in coming months.
“When the strongest sectors get hit, that’s when the decline usually ends,” he said.
Appel doesn’t expect any serious rally attempts until June or July when second-quarter earnings begin to roll in. But if those earnings prove as disappointing as first-quarter earnings, the market could continue to spiral downward.
“We have no way of predicting this thing, and I don’t know that anyone does,” he said. “But the market appears to be saying that earnings are not likely to increase enough to support today’s valuations.”
Indeed, while this year’s biggest market hits were largely caused by big dramas--the scandals involving Enron, Arthur Andersen and Merrill Lynch--Monday’s sell-off was spurred by fundamentals, said Esther Berger, managing director of Berger & Associates in Beverly Hills.
“Today was sound reasoning versus hysteria,” she said. “There is widespread and genuine concern that corporate profits are not going to be particularly strong, that we could have a recovery without profitability.”
Berger said her firm is maintaining about 20% of its assets in cash, believing that today’s market prices still are too high for most stocks.
“We have a shopping list of stocks that we want to own, but we believe we’ll be able to own them at slightly more attractive prices if we’re patient,” she said. “I would not exit the market stage left. But the economic climate is not what it was two or three years ago, and it’s not going to be for some time.”
Analysts said Monday’s light volume was due in part to investors sitting on the sidelines in advance of today’s Federal Reserve policy meeting. The central bank is expected to stand pat on interest rates because the evidence of a recovery by the U.S. economy is still spotty and there are few signs of inflation.
In other markets, yields on longer-term Treasury securities rose as the government prepared its biggest quarterly bond sale since 1999. The dollar rose against the yen. Gold prices slipped.
* Oil shares pushed the market lower after Iraq said it will resume daily oil exports after a monthlong embargo and crude prices dropped 50 cents to $26.12 in New York trading. ExxonMobil dropped $1.34 to $39.25, dragging on the blue-chip Dow. Oil driller Transocean Sedco sank $2.64 to $36.01. The oil and gas index had the biggest percentage loss in the S&P; 500 index, dropping 6.0%.
* Hewlett-Packard, trading on the NYSE under the new stock symbol HPQ, rose 78 cents to $18.22 in the first day of trading since the company completed its acquisition of Compaq Computer.
* Cisco Systems shed 25 cents to close at $12.89 on Nasdaq, erasing earlier gains. Analysts expect the Web gear giant to triple last year’s weak results as the technology bellwether’s reliance on large customers outside of the telecom industry helped it weather the meltdown in spending by telephone companies.
