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Stocks Decline Again Amid Uncertainty

Economic concerns and higher share values keep investors at bay. Nasdaq leads in losses, dropping 6% for the week, and bond yields sink further.

September 27, 2003|Josh Friedman | Times Staff Writer

Key stock indexes stumbled Friday to their fifth down day in the last six sessions as economic uncertainty and concerns that share prices may have climbed too high too fast continued to rattle investors.

The tech-heavy Nasdaq composite index sank 6% on the week -- its worst drubbing since April 2002.

Bond yields also fell anew Friday, knocking the benchmark 10-year Treasury yield to its lowest level in more than two months, as investors took profits in stocks and shifted money into fixed-income securities.

"It all boils down to the economy, and the economy is showing signs of fatigue," said Merrill Lynch's David Rosenberg. "There has been a change in the landscape, and that's being reflected in this stock market-bond market shift."

The Dow Jones industrial average lost 30.88 points, or 0.3%, to 9,313.08; the Standard & Poor's 500 index slid 6.42 points, or 0.6%, to 996.85; and Nasdaq tumbled 25.17 points, or 1.4%, to 1,792.07.

Falling stocks outnumbered gainers by almost 2 to 1 on the New York Stock Exchange and by almost 3 to 1 on Nasdaq.

For the week, blue-chip indexes held up better than Nasdaq, though they declined for the second week in the last seven. The Dow fell 3.4% and the S&P 500 lost 3.8%, the worst weekly losses for both benchmarks since early this year.

Since rocketing almost 30% from its 2003 low on March 11 through Sept. 18, the S&P 500 has retreated 4.1%. The yield on the 10-year Treasury note, which hit a recent peak of 4.6% on Sept. 2, dropped to 4% on Friday from 4.08% on Thursday.

Friday's economic news did little to clear up the uncertainty surrounding the health of the U.S. business climate.

The U.S. government revised its reading of second-quarter gross domestic product growth upward to a 3.3% annualized rate from 3.1%. But the University of Michigan revised its September consumer sentiment index downward. The measure slipped to 87.7 points from 88.2, raising fears of a pullback in consumer spending.

Now that stocks are much costlier than they were six months ago, investors are less willing to give the economy and the equity market the benefit of the doubt, said Russ Koesterich, strategist at State Street Global Markets in Boston.

"The economic numbers in isolation have been fairly good, but valuations have gotten extremely high in relation to the earnings growth we're likely to get," Koesterich said.

Jack Caffrey, strategist at J.P. Morgan Chase's private bank, noted that economically sensitive industries have been taking it on the chin lately.

Earlier in the week, chemical maker Rohm & Haas warned of sluggish industrial demand; Standard & Poor's cut its credit rating on paper companies, citing slow economic recovery; and media giant Viacom trimmed its profit outlook because of soft sales in local ad markets.

The surprise decision Wednesday by the Organization of the Petroleum Exporting Countries to cut oil supplies added to investors' growing fears that fourth-quarter and 2004 profits could be less than expected because of higher energy costs. In Friday's commodity trading, however, oil eased 13 cents to $28.16 a barrel.

Corporate governance -- not just at U.S. firms but also at the Big Board itself -- remained on investors' minds Friday.

Russian President Vladimir V. Putin visited the beleaguered NYSE, which is searching for a new chairman after the ouster of highly paid Richard Grasso and is considering a host of structural reforms. Putin also spoke at a corporate round-table with U.S. chief executives.

In currency trading, the dollar weakened to 111.91 Japanese yen from 111.96 on Thursday but firmed against the euro. The yen capped its biggest two-week gain against the greenback in almost five years as central bankers from major industrial nations pushed for a stronger Japanese currency and Japan's economy showed signs of pulling out of its 12-year slump.

In Friday's other highlights:

* John Hancock Financial Services climbed $2.25 to $34.50 after reports said the life insurance giant could be acquired.

* Drug developer Trimeris dropped $3.16 to $25.26 after warning that analysts' sales projections for its Fuzeon HIV medication were too optimistic.

* Chip component maker Novellus Systems slid $1.69 to $33.62 on a downgrade from Credit Suisse First Boston. Elsewhere in tech, Yahoo sank $1.45 to $35.08, and Nvidia eased 67 cents to $16.86.

* 3M bucked the downdraft, rallying $1.84 to $143.45 on an upgrade from Banc of America.

Market Roundup, C4-5

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