Another Week, Another Decline
Wall Street stumbled to another losing week Friday, completing a sharp reversal of fortune as the major U.S. stock indexes gave up most of their remaining gains from Wednesday’s epic rally.
Tech and telecom stocks were pummeled in Friday’s slide, which knocked the Nasdaq composite index down 3% en route to its third-straight losing week.
Nasdaq fell 49.64 points to 1,600.85; the Dow Jones industrial average lost 97.50 points, or 1%, falling below 10,000 again, to 9,939.92; and the Standard & Poor’s 500 index slipped 1.7% as two days of selling followed the huge rally that lifted Nasdaq nearly 8% on Wednesday.
For the week, Nasdaq lost 0.8%, the Dow 0.7% and the S&P; 1.7%. Even smaller stocks, one of the market’s few strong sectors this year, took a hit this week, with the Russell 2,000 index sliding 2%.
“Despite the fact that the economy seems to have bottomed out, earnings really aren’t picking up yet,” said Chris Orndorff, head of equities at money manager Payden & Rygel in Los Angeles.
He and other strategists said Wednesday’s rally was fueled more by “short covering” than by a genuine belief that strong quarterly profit from Cisco Systems signaled a long-awaited turnaround in the tech sector.
In a short-covering rally, traders betting on declines rush to hedge their positions or close them out by buying shares--a trend that usually doesn’t last.
Cisco’s earnings, stemming more from cost cutting than revenue growth, were “not nearly enough” to justify Wednesday’s 24% rise in the stock, said Louis Navellier, editor of the Blue Chip Growth Letter, an investing newsletter. In Friday’s trading, the networking giant shed 33 cents to $15.42.
Other heavily shorted stocks such as WorldCom also were among Wednesday’s big winners, said Banc of America Securities strategist Thomas McManus.
Quick, sharp rallies such as Wednesday’s are typical within a bear market, McManus said, noting that investors may have been lulled into complacency by the decline of the previous six weeks.
Friday’s trading volume was modest, but losers led gainers by nearly 2 to 1 on the New York Stock Exchange and Nasdaq.
The market has weakened since its March rally, with Nasdaq falling in eight of the last nine weeks and the S&P; 500 in seven of the last eight. Investors remain troubled by corporate accounting woes, Wall Street scandals and the uncertain outlook for the U.S. economy and company earnings.
“The mood is very downcast right now, and people are just really skeptical on stocks,” said Brian Pears, head of equity trading at Victory Capital Management. “They are getting disappointed with the fact that Wednesday didn’t mean so much.”
Meanwhile, bond yields eased as investors shifted money from equities into fixed-income vehicles. The yield on the benchmark 10-year U.S. Treasury note dipped to 5.12% from 5.16% on Thursday.
Among other highlights:
* Telecom stocks paced Friday’s plunge after Standard & Poor’s downgraded WorldCom’s credit rating to “junk,” or below investment grade, following a similar move by Moody’s. WorldCom fell 43 cents to a new low of $1.58, Qwest Communications lost 86 cents to $5.04, and Sprint-PCS Group sank $1.82 to $9.74.
* Crude oil surged to an eight-month high amid fears that a possible retaliatory strike by Israel against the Palestinians could disrupt supply as tensions flare in the Middle East. Crude rose 31 cents to $27.99 in New York trading.
Oil stocks were mixed, however. Exxon Mobil fell 40 cents to $38.96, and ChevronTexaco lost 32 cents to $87.95. Among drillers, Transocean gained 83 cents to $37, and Nabors Industries rose $1.03 to $47.17.
* The dollar continued its recent slump against the yen and euro amid signs of a sluggish U.S. economic recovery. The dollar declined to 127.83 yen from 128.27 on Thursday, and the euro rose to 91.4 cents from 90.9.
* “Old-economy” stocks such as fast-food giant McDonald’s and drug heavyweight Johnson & Johnson helped support the Dow on hopes these companies can offer more stable quarterly profits. McDonald’s rose 53 cents to $29.81; Johnson & Johnson advanced 48 cents to $61.85.
* The SOX semiconductor index sank 4.5% in the technology-led sell-off. Intel, the world’s largest maker of computer chips, surrendered $1.23 to $27.01. Chip equipment maker Applied Materials slumped $1.56 to $23.70.
* Energy traders took another hit. Reliant Resources fell $2.49 to $12 after the it canceled a $500-million bond offering because it failed to disclose electricity trades that may have inflated sales. Parent Reliant Energy fell $3.15 to $21.45, and rival energy trader Dynegy lost $1.17 to $9.88.
Reuters was used in compiling this report.
Market Roundup, C4-5
