Profit warnings from Ciena and Lucent Technologies, along with news of more layoffs and deteriorating retail sales, prompted heavy selling on Wall Street on Thursday, driving stocks to a one-month low.
The spate of negative news indicated that parts of the economy are likely to remain weak in early 2002, a disappointment to investors who have been buying stocks for weeks on increasing confidence of an impending economic recovery.
"People want to see some less negative profit numbers, as well as the first sign that profits are going to return to positive in the foreseeable future," said Ronald J. Hill, investment strategist at Brown Bros. Harriman & Co.
The Dow Jones industrial average closed the session down 128.36 points, or 1.3%, at 9,766.45. It was the fifth loss for the Dow in the last six sessions as a string of high-profile profit disappointments have stalled the big rally that began in late September.
The broader market, with a greater percentage of technology stocks than the Dow, suffered the most from Thursday's warnings. The Nasdaq composite index dropped 64.87 points, or 3.2%, to 1,946.51, and the Standard & Poor's 500 index fell 17.69 points, or 1.6%, to 1,119.38.
Declining issues swamped advancers 2 to 1 on Nasdaq and the New York Stock Exchange amid brisk trading.
Analysts said that Thursday's batch of discouraging reports doesn't mean the economy isn't going to improve, and that investors should remember a recovery takes time.
"What individual investors and portfolio managers alike have to get used to is that this is a transitional market," said Brian Belski, fundamental market strategist for U.S. Bancorp Piper Jaffray. "Companies are still in the cleanup process."
The market's losses were widespread, with the sharpest declines coming from sectors that indicated business will remain tough into 2002.
Technology suffered from a first-quarter earnings warning from Ciena and the news of 1,700 job cuts by Applied Materials on Wednesday after the market closed. Networker Ciena slid almost 17%, down $3.03 at $14.94, and chip equipment maker Applied Materials fell $3.79 to $41.08.
Other networking and semiconductor stocks fell. Broadcom dropped $3.48 to $42.47, and PMC-Sierra sank 16.5%, down $4.63 at $23.39.
Telecommunications stocks declined on the first-quarter profit warning from Lucent, which itself plunged nearly 16%, down $1.21 at $6.52. Competitor Motorola stumbled 77 cents to $16.15.
Among blue chips, investors punished retailers after the Commerce Department reported that retail sales plunged 3.7% in November. Best Buy fell $1.15 to $66.05, and Wal-Mart Stores declined 97 cents to $53.36.
Aetna slipped 30 cents to $30.74 after the health-care provider said it was cutting 6,000 jobs, or 16% of its work force.
Winners included United Technologies, which rose $1.15 to $60.65 and was the strongest Dow component after it raised its 2002 earnings projections.
There was some positive economic news, but it failed to trigger much buying. The Labor Department said the number of Americans filing first-time claims for unemployment benefits fell by 86,000 last week, the biggest weekly decline in nine years.
A separate report showed wholesale prices fell for a second straight month, dropping 0.6% in November after a 1.6% plunge in Octo-ber.
In other market news:
* Bond yields rose for the first time in four days as investors fretted that the jobless report indicates the U.S. economy is nearing recovery. The yield on the benchmark 10-year Treasury bond rose to 5.07% from 5% on Wednesday, while the yield on the two-year T-note climbed to 3.05% from 2.97%.
* Shares of Prudential Financial rose $1.80 to $29.30 in their first day of trading. The nation's second-largest life insurer raised $3billion in its initial public stock offering.