Dow's dive led by key companies

Average plunges 243 points on rate, earnings concerns

Nasdaq, S&P also fall

Analysts seem unsure about whether losses will continue

Wall Street

January 25, 2000|By William Patalon III | William Patalon III,SUN STAFF

Concerns about rising interest rates and soon-to-be-released corporate profit reports from key companies sent stocks into their biggest slide in three weeks yesterday, but market-watchers were hard-pressed to say whether the losses would continue.

The Dow Jones industrial average fell 243.54, or 2.16 percent, to close at 11,008.17. Its 449-point swing yesterday was its largest since October 1997.

The Standard & Poor's 500 index lost 39.83, or 2.76 percent, to finish at 1,401.53. The Nasdaq composite index dropped 139.32, or 3.3 percent, to 4,096.08, a free fall from Friday's record close.

Twenty-five of the Dow's 30 stocks fell, and 81 of the S&P 500's 89 industry groups dropped.

Two stocks fell for each one that rose on the New York Stock Exchange, where 1.15 billion shares changed hands.

The Nasdaq had its busiest day ever, with nearly 1.94 billion shares traded, breaking the record of 1.91 billion set Friday. Decliners led advancers by a 4-to-3 margin. The Nasdaq's losses were the biggest since the first week of the year, when the technology-heavy index shed 9.8 percent of its value in three days. After that, the Nasdaq went on a tear.

Yesterday, "there were no definable negatives in terms of earnings disappointments, rising interest rates or other corporate developments," said Richard Cripps, chief investment strategist for Legg Mason Wood Walker Inc. in Baltimore.

Some experts believe that big drops in such key stocks as health care products company Johnson & Johnson, conglomerate General Electric Co. and networking products company Cisco Systems Inc. were due to worries that fourth-quarter earnings would come in below Wall Street's estimates.

Johnson & Johnson, which reports its earnings today, dropped $6.1875 to close at $83.6875.

"There were some earnings concerns about several of the big stocks," said Bob Freedman, chief investment officer for the high-net-worth portion of the John Hancock Funds in Boston.

Freedman does not think the losses will continue; however, Legg Mason's Cripps says the Dow, and particularly the Nasdaq, could fall more, before settling into a "trading range."

Cripps said investors have been selling some of the big-company names that were winners last year and are searching for bargains in the stocks of smaller companies, known as "small-caps."

Other market experts say investors are taking a closer look at bonds.

"People are taking money out of equities across the board and putting it to work in the bond market," said Dan Mathisson, head trader at D. E. Shaw Securities in New York. "The market just gained a tremendous amount in a short time, and the time came for it to give back."

Investors have reason to show caution: The Federal Reserve's interest-rate-setting policy committee meets next week and is widely expected to raise interest rates -- probably a quarter-point, though some fear it could be as much as a half-point. The Fed has raised the overnight bank lending rate three times since June to 5.5 percent. It hopes to keep the blistering economy from overheating into potentially ruinous inflation.

But there's a cost. The higher that interest rates -- the "price" of money -- go, the more attractive less-volatile investments like bank certificates of deposit look relative to stocks. If investors start trading in their stocks for CDs, the stock indexes will fall.

Investors likely were not heartened by the comments of San Francisco Federal Reserve Bank President Robert Parry, who said that increases in productivity are allowing the economy to grow faster than previously thought without inflation.

Even so, Parry said that "at best, an increase in the productivity growth rate can hold down inflation for a time."

His message: The Fed has more work to do raising interest rates.

Elsewhere on the broad market, the Russell 2,000 index, a benchmark of small-cap stocks, slid 10.99 to 522.95; the Wilshire 5,000 index sank 359.98 to 13,433.41; the American Stock Exchange composite index dropped 6.79 to 905.49; the NYSE composite index sank 14.34 to 625.24; and the S&P 400 midcap index slipped 11.42 to 441.45.

The Sun-Bloomberg Maryland index of the top 100 Maryland stocks slumped 10.35 to 251.48.

Cisco, the No. 1 maker of computer-networking equipment, fell $6.1875 to $109.0625, and Wal-Mart Stores Inc., the world's biggest retailer, lost $3.625 to $58.8125. Both companies report earnings next month.

Sun Microsystems Inc., a Cisco rival, dropped $5.3125 to $79.125.

GE, which reported profit last week that failed to beat expectations, fell $6 to $138.125.

Intel Corp., the No. 1 computer chip maker, climbed 87.5 cents to $98.8125 after Robertson Stephens analyst Dan Niles said demand for computers will rebound after a slowdown last year caused by Y2K fears. He said Intel could reach $125 by the end of the year. Inc. jumped $8.0625 to $70.125 after the world's No. 1 online retailer said it would receive $105 million from over three years for featuring the drug retailer on its Web site.

American Express Co. fell 37.5 cents to $151.3125, erasing a $5.8125 gain, after reporting fourth-quarter earnings that matched analysts' expectations.

Eastman Kodak Co. added $1.375 to $62.125 after the world's biggest photography company said profit from operations rose 17 percent, beating analysts' estimates.

Wire services contributed to this article.

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