The beleaguered Nasdaq index carved out another 26-month low Friday as investors buckled under the weight of an earnings warning from software giant Oracle.
"When you get a big bellwether like Oracle coming out like this, people say, 'Let's get out of the way,' " said money manager Peter Nori of Templeton Global in Fort Lauderdale, Fla.
Blue chips eked out a modest gain amid buying in defensive issues--companies expected to better weather the economic downturn.
The technology-laden Nasdaq composite index closed down 65.74 points, or 3.0%, at 2,117.63, its lowest finish since Dec. 18, 1998. That brought its loss for the week to 6.4% and marked its fifth losing week in a row. Nasdaq is now off 14.3% for the year and 58% from its peak last March 10.
The blue-chip Dow Jones industrial average rose 16.17 points, or 0.2%, to 10,466.31. The widely watched Dow rose 0.2% for the week and is now off 3.0% for the year.
The broader Standard & Poor's 500 index slipped 7.05 points, or 0.6%, to 1,234.18. For the second time this week, the S&P 500 strayed into bear market territory--a 20% decline from its March 2000 peak--before rebounding.
It also was the fifth down week for the S&P 500 index, which fell a slight 1% for the week and is down 6.5% year to date.
Despite the lackluster results, advancing issues outnumbered decliners by 19 to 11 on the New York Stock Exchange and by a slim 19 to 17 on Nasdaq. Volume was heavy on both markets.
Nasdaq made a short-lived attempt at a rebound after falling more than 4% in early trading. Oracle weighed heavily on the index after the company warned that the soft U.S. economy would drive its earnings below Wall Street's estimates. About 223 million Oracle shares changed hands, making it the third-most-active stock ever on Nasdaq. The stock fell $4.50 to $16.88.
Sentiment was soured by a fresh batch of data pointing to a slowdown in consumer spending. U.S. consumer sentiment as measured by the University of Michigan's twice-monthly barometer hit its lowest level in nearly five years in February. The three-month drop from December through February is the largest since the last recession in 1990.
"I think the weakness in the economy will persist through the second half," said Stanley Nabi, managing director of Credit Suisse Asset Management. "I am not saying we will be in recession, but we certainly will have a profit recession this year." Nabi is forecasting a 10% drop in the earnings of S&P 500 companies this year.
Federal Reserve Chairman Alan Greenspan, who has emphasized the importance of Americans' confidence in the economy, said in congressional testimony Wednesday the Fed must closely watch sentiment after its "steep falloff." However, the Fed chief gave little indication the central bank will cut interest rates before its next policy meeting on March 20.
Disappointment over Greenspan's remarks--coupled with a shift of investors' cash into blue-chip stocks--fueled a sell-off in the bond market. The yield on the two-year Treasury note rose to 4.45% from Thursday's close of 4.40%. The yield on the benchmark 10-year note climbed to 4.94% from 4.88%.
The Oracle gloom spread throughout the software sector amid fears of indiscriminate spending cuts in the industry. The S&P computer software index was down a whopping 9.3%, reflecting weakness by Siebel Systems Inc., which fell $8.52 to $36.11, and Veritas Software Corp., off $7.06 at $63.63.
Among other software makers, BEA Systems Inc. dropped $6.23 to $32.69, PeopleSoft Inc. skidded $7 to $27.06 and I2 Technologies Inc. tumbled $2.94 to $24.63.
"The rush of [earnings] pre-announcements has really hurt the market; every time it lifts, some other company comes in and warns," said Larry Wachtel, a market analyst at Prudential Securities. "Nobody can come up with a catalyst or bright point to change the tide."
The shares of a number of recently beaten down computer makers rallied Friday, including Dell Computer, up 56 cents to $22.06, and Apple Computer, up 50 cents to $19.25, as did some telecommunications firms and some computer chip makers. The Philadelphia semiconductor index rose 2%.
But many other top Nasdaq names slumped, including top Internet gear maker Cisco Systems, which finished with a loss of $2.31 at $22.19.
Market Roundup, C4