Big companies warn of reduced earnings

Japan's banks weak

`Worldwide blood bath'

Dow close is below 10,000 for first time in five months

March 15, 2001|By Kristine Henry | Kristine Henry,SUN STAFF

After a day's respite, worries that the economic slowdown is broadening rocked Wall Street yesterday, sending stocks into a tailspin as the Dow Jones industrial average plunged 317.34 points to its first close below 10,000 since October.

New profit warnings from big corporations and news of trouble with Japan's banks further alarmed skittish investors and drove the blue chip Dow to 9,973.46, down 3.08 percent.

Damage to already battered technology stocks was less as the Nasdaq recovered from an early plunge to end with a loss of 42.69 points, at 1,972.09. The Standard & Poor's 500 tumbled 30.95 to 1,166.71. An index of the top 50 European stocks also hit a 16-month low.

"It's been a worldwide blood bath today," said Don Hilber, senior economist at Wells Fargo & Co. in Minneapolis. "It's kind of a capitulation, throw-in-the towel type of move. Investors just don't think earnings for a lot of companies are going to recover any time in the near term."

Yesterday's plunge followed a free-fall Monday that saw the Dow sink 436 points and the Nasdaq 129.4 points to its first close below 2,000 in more than two years.

It all added up to a $270 billion loss in the total market value of New York Stock Exchange, American Stock Exchange and Nasdaq stocks on top of a $554.5 billion beating Monday, according to Wilshire Associates of Santa Monica, Calif.

Investors said the Dow's decline showed that concern about profits has spread beyond technology stocks. Until today, the Dow was up 3.5 percent over the past 12 months. It is down 15 percent from its Jan. 14, 2000, peak, while the Nasdaq has fallen 61 percent from its high.

"The last bastion of safety was the Dow," said Ed Hemmelgarn, president of Shaker Investments Inc., a Cleveland firm that manages about $1.5 billion.

Several major market movers cautioned yesterday that their earnings are worsening. Wireless phone company Nextel Communications Inc. said slowing business purchases would cut its operating cash flow in the first quarter by about 15 percent. McDonald's Corp. also warned that its earnings would be down amid concern over Europe's beef supply due to hoof-and-mouth disease.

Adding to the negative pressure, analysts said, was investors' fear that when the U.S. Federal Reserve Board meets Tuesday it will lower rates by only a half-percent - not enough, they said, to boost a faltering economy.

Investors also worried about an announcement by the Fitch rating agency that it could cut its ratings of 19 Japanese banks. Japan's government, typically wary of admitting weakness, also acknowledged the country's economy is in a state of deflation - a trend that can lead to recession.

The fear is that Japan's economic problems will cut into demand in that country for U.S. goods and services and lead to a further drop in American stock prices.

"The reaction to word that Japan is in a pretty tough spot is perhaps the prevailing issue driving the market down today," said Charles G. Crain, strategist for Spears, Benzak, Salomon & Farrell, a division of Key Asset Management in New York.

"The market just never has and never will like uncertainty," said Dennis Green, director of Nasdaq trading at Baltimore-based Legg Mason Wood Walker Inc. "The market was looking for an excuse to go down, and they certainly had a whole pile. It was like take your pick this morning."

But those excuses are just that - excuses, said Lisa Costa, senior portfolio manager of American Express' Growth Fund.

Profit warnings and trouble in Japan are nothing new, she said, and emotion is as large a factor in the market plunge as anything else.

"When the psychology goes from looking for good news vs. looking for bad news, I think a lot of these stocks will turn around," she said. "My guess is people are just trying to kind of grasp at what's the news of the day and the flavor-of-the-day psychology has been very negative, and that tends to feed on itself."

Every one of the 30 Dow stocks was down yesterday. The biggest loser was JP Morgan Chase, which fell 7.7 percent to $43.75, followed by American Express Co., down 7.57 percent to $38.48. Other sectors were also hit: Boeing Co. was off 4.21 percent to $58.02, and International Paper Co. fell 5.06 percent to $35.45.

Morry Zolet, senior vice president for investments at Salomon Smith Barney's Lutherville office, said last year's irrational exuberance is being followed up with irrational fears.

"Last year at this time, everyone was throwing money into the market for fear of missing out because their friends were making money. Things were out of touch with the fundamentals of the underlying stock," he said.

"The exact same thing is happening today but on the downside. People are saying, `Get me out, get me out.' "

President Bush used the bad news to promote his proposed $1.6 trillion tax cut plan as he spoke to business leaders in New Jersey yesterday.

"I'm sorry people are losing value in their portfolios," he said. "That worries me, but with the right policies, I'm confident our economy will recover ... and that means giving people money back, in plain language."

It was the first time Bush had directly claimed his tax plan was a remedy for the stock market troubles.

Many financial advisers are taking this recent market dip to remind investors that their portfolios should be diversified - with an array of stocks in different sectors and some bonds thrown in for safety.

Some also see the falling prices as an opportunity to scoop up bargains.

"This is a tremendous opportunity to take advantage of fire-sale-type priced stocks," said Costa.

The Associated Press and Bloomberg News contributed to this article.

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