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Markets Hammered to Start 2nd Quarter

Stocks: Nasdaq tumbles to a 29-month low. Earnings warnings, jitters over China incident rattle investors.

April 03, 2001|From Times Staff and Wire Reports

New quarter, same bear market.

Wall Street kicked off the second quarter with a dismal session that saw the Nasdaq composite index tumble to a 29-month low and the broader market slide as well.

Investors' bearish sentiment intensified amid a fresh barrage of earnings warnings from former technology stars and fears over China's holding of a U.S. spy plane, traders said.

The Nasdaq composite sank 57.29 points, or 3.1%, to 1,782.97, its lowest close since Oct. 30, 1998. Monday's loss left the index down 65% from its peak in March 2000.

The Dow Jones industrial average slid 100.85 points, or 1%, to 9,777.93, hurt in part by an earnings warning from charge-card giant American Express.

Although blue-chip stocks rallied last week, the outlook "hasn't changed any" for corporate earnings in the near term, said Donna Van Vlack, head trader at Brandywine Asset Management.

Indeed, "we unquestionably are well on our way to a new record" for corporate earnings warnings for the first quarter, said Charles Hill, director of research at First Call/Thomson Financial.

Nearly 700 firms have announced that results will be below expectations--a number that continued to grow Monday as many once-promising tech firms said customers either aren't buying equipment or services, or are canceling previous orders.

Still, the stock market was holding up relatively well until about midday.

Prices tumbled around 11:40 a.m. EDT after President Bush said he is "troubled" that China is not allowing U.S. diplomats to meet with the crew of a U.S. Navy plane that collided with a Chinese fighter jet Sunday and made an emergency landing on a Chinese island.

"Nine times out of 10, when something screws up the economy, it's some kind of world event," said Alan Day, money manager at the Stratevest Group in Burlington, Vt.

The Dow was down as low as 9,705 before rebounding a bit near the close.

Wall Street also was blindsided by a rise in Treasury bond yields after a report from the manufacturing sector suggested that weakness in that part of the economy is not worsening. That raised fears that the Federal Reserve may be less willing to cut interest rates again--though the report seemed to help stocks early in the day.

The five-year Treasury note yield rose to 4.61% from 4.55% on Friday.

In the stock market, some of the day's biggest losers were sectors that held up relatively well in the first quarter. The Standard & Poor's small-stock index fell 2.8%. It had fallen 6.7% in the first quarter, much less than the 12.1% drop in the blue-chip S&P 500 index.

The S&P 500 eased 1.3% on Monday.

Overall, losers topped winners by 3 to 2 on the New York Stock Exchange and by nearly 3 to 1 on Nasdaq. Trading was active.

Some analysts had reasoned that stock prices were ready to rebound Monday because money managers finished "window dressing" Friday. That's the practice of selling poor-performing shares at the end of the quarter to dress up portfolio results.

"The market is ready to rally. You have very oversold [stocks] and very bearish sentiment, and you have liquidity that is out there," said Richard Cripps, chief market strategist for Legg Mason of Baltimore. "The fact that one didn't get started is disappointing."

Others worry that investors are not prepared for how bad first-quarter earnings may be.

As more companies announce disappointing results, investors are realizing that earnings expectations are still too optimistic, said Daniel Bandi, manager of the Armada Small-Cap Value Fund. "You look at the earnings estimates out there, and they're ridiculous," he said.

Among tech leaders, Hewlett-Packard fell $2.35 to $28.92, IBM lost $1.52 to $94.66, Texas Instruments slid $2.63 to $28.35, and Yahoo dropped $1.75 to $14.

Other sectors losing ground included drugs, home builders and food stocks. On the plus side, many retailers and utilities rose.

Energy stocks slid as crude oil dropped 70 cents to $25.59 a barrel, an 11-month low, amid ongoing fears about rising oil inventories.

Foreign markets were mostly lower to start the quarter. Germany's DAX index fell 1.4%, and Japan's Nikkei index fell 0.5%. Brazil's market dived 3.2%.

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Market Roundup: C12-13

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

The Meltdown Continues

Another wave of earnings warnings from once-highflying tech companies helped send the tech sector tumbling anew Monday and pushed the Nasdaq composite index below 1,800. Some of the day's big losers:

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Ticker 52-week Mon. close Mon. pctg. Stock symbol high and change change Winstar Commun. WCII $61.50 $0.88, -$1.28 -59.4% Art Technology ARTG 126.88 5.97, -6.03 -50.3 E.piphany.com EPNY 98.06 9.75, -1.94 -16.6 Micron Technology MU 97.50 36.25, -5.28 -12.7 Lucent Tech LU 67.19 8.83, -1.14 -11.4 Amazon.com AMZN 68.63 9.10, -1.13 -11.1 Global Crossing GX 42.00 12.02, -1.47 -10.9 Redback Networks RBAK 181.00 11.70, -1.38 -10.6 Applied Materials AMAT 115.00 40.00, -3.50 -8.1 AOL Time Warner AOL 69.38 37.17, -2.98 -7.4 Nasdaq composite 4,572.84 1,782.97, -57.29 -3.1

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Sources: Bloomberg News, Times research

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