GE, Automaker Downgrades Spark Sell-Off
A wave of selling swamped the stock market Wednesday after bleak comments and forecasts from Wall Street analysts on companies such as General Electric and Ford Motor fanned fears about corporate profits and sent investors scampering for the shelter of government bonds.
The rout was unusually broad--even by the standards of the current bear market, now the deepest since the Great Depression. Losers trounced winners by almost 7 to 1 in active trading on the New York Stock Exchange, the worst ratio in four years.
The Dow Jones industrial average sank 215.22 points, or 2.9%, to 7,286.27. The Dow is at levels not seen since October 1997 and is down more than 37% from its January 2000 high.
“Investors are completely losing confidence,” said Scott Schermerhorn, an investment manager at Columbia Management Group. Investors, he said, are tired of putting money into the market only to see it disappear in ever-deeper sell-offs. “It’s like banging your head against the wall so many times it hurts ... you are not going to do it anymore.”
There were some glimmers of hope after the market closed, when Yahoo, Aetna and Bausch & Lomb either forecast or reported better-than-expected quarterly earnings. But analysts remain downbeat about prospects for corporate earnings overall.
“We are seeing some of the gap between reality and expectations closing,” said Richard Babson, chairman of Babson-United, which manages money for wealthy individuals. “There were these hopes for a fantastic rebound [in profits], but it turns out it’s not that fantastic.”
The market got a boost Tuesday on hopes that the 10-day shutdown of West Coast ports was nearing an end, and indeed dockworkers were to head back to work late Wednesday after a federal judge approved President Bush’s request to reopen the ports.
Still, analysts say investors were worried about the long-term costs of the port dispute, including clearing a backlog of goods that will take weeks.
“The concern out there is that the retailers do not get the goods on the shelves in time for the post-Thanksgiving shopping season,” said Jim Russell, director of core equity strategy for Fifth-Third Bank in Cincinnati.
In the broader market, the Standard & Poor’s 500 index slid 21.79 points, or 2.7%, to 776.76, closing at its lowest level since the spring of 1997 and 49.1% below its March 2000 peak.
The Nasdaq composite index slipped 15.10 points, or 1.3%, to 1,114.11, carving out a new six-year closing low. Losers led winners by 5 to 2 on Nasdaq, which is down 78% from its March 2000 high.
Yields on Treasury securities fell to new generational lows as investors continued to seek safety from falling stocks in government debt. The yield on the benchmark 10-year Treasury note fell from Tuesday’s close of 3.63% to 3.57%, its lowest since 1958.
GE fell $1.35 to $22, hurting blue chips and financial stocks too, after Morgan Stanley cut the stock’s price target and said the conglomerate “could be walking into the most difficult operating environment that GE has experienced in at least a couple of decades.” Morgan Stanley also cited concerns about losses in GE Capital’s portfolio.
“Seems to me that the story is the financial services areas and GE and Ford Motor. Investors seem a bit concerned about credit in the United States,” said Val Jensen, president of the Jensen Portfolio.
Automakers tumbled again after Morgan Stanley cut its earnings outlook on Ford, General Motors and DaimlerChrysler, a day after Credit Suisse First Boston downgraded the sector.
Among the day’s highlights:
* Financial stocks took a hit after Moody’s Investors Service cut J.P. Morgan Chase’s long-term debt ratings. Morgan, a Dow stock, lost $1.15 to $15.45. The Philadelphia banking index lost 4.3%. Citigroup shed 95 cents to $26.89, Bank of America slid $3.05 to $54.15, and Bank One lost $2.23 to $32.59.
* Battered transportation and utility stocks fell further. The Dow transports index dropped 4.8% as airline and rail shares slumped; the Dow utilities index plunged 9.6%.
* Drug maker Merck late in the session reaffirmed that 2002 earnings would be flat compared with 2001, as slowing sales of arthritis drug Vioxx and generic competition hurt revenue this year. Shares of Merck, down 3.5% before the announcement, rose after the outlook was released but fell again to close at $45.63, down 37 cents.
* Casino stocks plunged on worries that third-quarter earnings will be lackluster. Harrah’s dropped $4 to $44.70; MGM Grand lost $2.82 to $31.68.
* Boston Celtics scored a rare winner. Shares of the storied basketball franchise shot up 147%, closing $16.65 higher at $28, on the first trading day since details of a buyout offer were unveiled last week.
* Shares of major tech companies, such as recently battered Cisco Systems, rallied and helped keep a floor under the tech-laden Nasdaq. Cisco, which had fallen for five trading sessions, gained 63 cents to $9.23 as bargain hunters came out in force.
* In Brazil, government bond prices slid to a six-year low on concern about the next president’s ability to make debt payments. The nation’s currency also slumped, ending at 3.86 per dollar.
Reuters and Bloomberg News were used in compiling this report.
Market Roundup, C6-7
