Stocks Near Lows of Summer
Wall Street’s bulls are facing a major test of their resolve as key indexes plummeted Thursday to within striking distance of their midsummer lows.
A fresh barrage of bad news drove the Nasdaq composite index down 35.68 points, or 2.9%, to 1,216.45, less than 1% above its five-year closing low of 1,206.01 reached Aug. 5.
The Dow Jones industrials tumbled 230.06 points, or 2.8%, to 7,942.39, the first close below 8,000 since the index ended at a four-year low of 7,702 on July 23.
The market’s slump in recent weeks has wiped out nearly all of the rally that followed the record selling wave of midsummer. Many investors had hoped that the summer plunge marked the end of the 2 1/2-year-old bear market, the longest decline since World War II.
But a growing number of corporate earnings warnings, Mideast war jitters and disappointing economic data all are taking a toll on investor sentiment.
On Thursday, shares of computer services giant Electronic Data Systems lost more than half their value, diving $19.26 to $17.20 after the firm warned of a profit shortfall because companies continue to rein in capital spending.
The news deepened the pessimism about the tech sector, where many stocks have already lost more than 90% of their value since the market peaked in 2000.
But worries about corporate earnings have spread beyond the tech sector. This week. fast-food titan McDonald’s and banking leader J.P. Morgan Chase separately warned of profit shortfalls in the near term.
The reports have raised doubts about the economic recovery, and thus about the market’s potential to mount a sustained rally--or even just to hold steady.
“Given the negative earnings news and the continual drumbeat of our march into Iraq, a lot of people are moving into cash and bonds,” said Phil Orlando, chief investment officer at Value Line Asset Management in New York.
Indeed, long-term Treasury bond yields fell to new 40-year lows Thursday as money fled stocks for perceived safer havens. The 10-year T-note yield dropped to 3.78% from 3.84% Wednesday.
Demand for Treasury securities has been huge in recent weeks as stocks have turned lower again. The 10-year T-note yield was 4.32% as recently as Aug. 22.
Stocks’ slide in recent sessions has been accompanied by rising trading volume, suggesting that more investors are anxious to exit the market. The quarterly expiration today of key stock index options and futures contracts is adding to volatility, analysts said.
The sell-off Thursday afternoon accelerated after President Bush sent Congress his proposed use-of-force resolution in the U.S.-Iraq standoff, Orlando said.
“There was some euphoria a couple days ago” as some investors saw Saddam Hussein’s overture to the United Nations as reducing the danger of war, but “Bush brought us all back to reality” on Thursday, Orlando said.
Falling stocks outnumbered winners by 25 to 7 on the New York Stock Exchange and by 24 to 10 on Nasdaq.
A report Thursday that housing construction fell in August for a third straight month may have particularly rattled investors because housing had been viewed as one of the pillars of the economic recovery. Builders’ stocks fell sharply. KB Home slid $3.26 to $46.98 and Centex slumped $3.56 to $44.89.
Carl Domino, manager of the Northern Large Cap Value stock fund in West Palm Beach, Fla., said the economic data in recent weeks have been a “mixed bag,” with some reports pointing to continued strength.
“There is some good news out there, but it just gets ignored,” Domino said.
Many analysts had warned in August that the market’s midsummer lows could be tested, and that is what looms. If key indexes fall significantly below the summer lows it could signal that a new phase of the bear market is underway. If the indexes hold above those lows it could indicate that the bear has reached its end.
Among Thursday’s highlights:
* Tech shares plunging with EDS included IBM, down $4.75 to $64.80; Computer Sciences, down $5.66 to $29.50; and Accenture, down $1.79 to $14.10.
Also, Nextel Communications fell $1.30 to $7 after the company’s chief operating officer, James Mooney, said he would leave by Oct. 1 to pursue new challenges.
* Amgen slid $3.47 to $42.01 after drug firm Wyeth said it will be free to start selling its 7.7% stake in the biotech firm on Oct. 15. Wyeth got the stake after Amgen in July bought Immunex, a Wyeth partner.
* Financial stocks were broadly lower. Citigroup dropped $1.46 to $27.65 and Goldman Sachs lost $3.26 to $67.15.
* Mexico’s main share index dived 5.3% as Wall Street sank. Major European indexes closed at five-year lows.
Market Roundup, C4-5
