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Profit Warnings, Iraq Strike Push Market Lower

February 17, 2001|WALTER HAMILTON | TIMES STAFF WRITER

U.S. stocks swooned again Friday as dimming forecasts for computer networking companies provoked fear that corporate earnings will skid longer and harder than had been thought just a few weeks ago.

The U.S. bombing raid in Iraq and a report showing sagging consumer confidence also cast a pall over the market, driving the Nasdaq composite index to its third straight weekly loss.

The tech-laden Nasdaq plummeted 127.53 points, or 5%, to 2,425.38.

The Dow Jones industrial average fell 91.20 points, or 0.8%, to 10,799.82 as modest gains in some energy and financial stocks somewhat offset losses in tech and cyclical issues.

Wall Street has stumbled in recent weeks after surging in January in the wake of the Federal Reserve's surprise interest rate cuts.

Continuing earnings warnings from key tech firms have led to concerns that the Fed's rate cuts won't be enough to revive profit growth soon. Warnings from non-tech companies including drug maker Schering-Plough, brokerage Charles Schwab and food giant ConAgra also dogged the market this week.

"The idea was that once the Fed came in, you were going to have a V-shaped recovery and everyone was going to go back to high-growth stocks and to risk-taking," said Jim Paulsen, investment chief at Wells Capital Management. Now "there are a lot of things to scare you."

Friday's sell-off was sparked by profit warnings late Thursday from fiber-optic giant Nortel Networks and from Hewlett-Packard.

The news reverberated through the networking sector and the technology sector in general. HP slid $3.22 to $33.13, Microsoft fell $1.50 to $57.31, Yahoo slumped $3.13 to $28.19, and Texas Instruments tumbled $4.06 to $36.60.

The dumping of networking stocks--which have continued to carry high valuations despite last year's tech sell-off--indicates just how long-lasting the latest tech sell-off could be, analysts say.

Until recently, networking stocks have held up fairly well relative to other tech issues as investors bet that companies worldwide would still spend money to upgrade their broadband communication and Internet systems. Those expectations now are fading rapidly.

"The Nasdaq will over the next two to four weeks make a new low, and investors are going to have to get over their tech habit," said Scott Bleier, chief investment strategist at Prime Charter Ltd., a New York investment bank.

The index's close Friday was its lowest since Jan. 8, when it ended at 2,395.92. Nasdaq had fallen as low as 2,397 on Friday before turning higher near the close.

The low for the last year was reached Jan. 2 at 2,291--a decline of 55% from the index's peak of 5,048 reached in March.

Losers swamped winners by 27 to 10 on Nasdaq on Friday and by 19 to 11 on the New York Stock Exchange. Trading was active in both markets ahead of the three-day holiday weekend.

Stocks also were hit Friday by the midday strike at Iraq and by the latest economic data.

A consumer confidence measure maintained by the University of Michigan fell to its lowest point in seven years, indicating that the American public is growing increasingly edgy about the weak economy. The Fed reported that industrial production dipped 0.3% in January, the fourth straight monthly decline.

Taken together, the two reports raised the likelihood that the Fed will keep lowering interest rates to head off a full-fledged recession.

But a separate report showing that inflation at the wholesale level jumped 1.1% in January raised concerns. Any renewed threat of inflation would hamper the Fed's ability to cut rates.

Still, Treasury bond yields were broadly lower Friday as investors sought safe haven amid a sinking stock market. The five-year T-note yield fell to 4.92% from 5.03% on Thursday. Gold prices also gained on the news.

Market Roundup: C4

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Failed Rally

The Nasdaq composite index sank 5% on Friday and 1.8% for the week, finishing at its lowest level since Jan. 8. The latest losses have wiped out the index's January gains and left it down 1.8% year to date.

Friday:

2,425.38, down 127.53

Source: Bloomberg News

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