Dow dives 275 points amid jitters

Nasdaq skids 69

investors wrestling with grim concerns

War, anthrax, recession

`Not a buy-and-hold market anymore,' one expert says

October 30, 2001|By William Patalon III | William Patalon III,SUN STAFF

The Dow Jones industrial average fell more than 270 points yesterday as investors worried that a prolonged war in Afghanistan could push the U.S. economy into an even deeper downturn - dimming hopes that corporate profits and stock prices will surge anytime soon.

The sell-off followed a week in which the Dow rose 4 percent, the Standard & Poor's 500 rose 3 percent and the Nasdaq composite index climbed 6 percent.

"This is not a `buy-and-hold' market anymore," said Morry A. Zolet, senior vice president of investments at Salomon Smith Barney in Lutherville. "You buy, you trim, and you re-allocate."

The Dow yesterday dropped 275.67 points, or 2.9 percent, to close at 9,269.50. The S&P fell 26.31 points, or 2.4 percent, to finish the day at 1,078.30. And the Nasdaq skidded 69.44 points, or 3.9 percent, to 1,699.52.

Declining issues led advancers more than 2 to 1 on the New York Stock Exchange. About 1.1 billion shares changed hands, compared with 1.26 billion on Friday.

Yesterday's sell-off interrupted - and may even have ended - a sizzling five-week stretch for stocks, analysts said. The S&P had gained 12 percent since hitting a three-year low Sept. 21. The technology-heavy Nasdaq had soared 21 percent during that stretch. The 30-stock Dow had climbed 13 percent.

However, reports of new anthrax cases, the prospect of more negative economic news and the fear that the war in Afghanistan may take much longer than expected may have dampened investor enthusiasm, market experts say.

For instance, U.S. Defense Secretary Donald H. Rumsfeld yesterday forecast a "very long" campaign in Afghanistan, where the United States and its allies are attempting to force the Taliban government to turn over the terrorists believed to have masterminded the Sept. 11 attacks on New York and Washington. That war is entering its fourth week, and no resolution is in sight.

Due throughout this week are reports on third-quarter economic growth, unemployment, consumer confidence and manufacturing, and many experts believe that the data will underscore what some economists already believe - the U.S. economy is in its first recession since 1990-1991.

"The economy is in the Dumpster and the likelihood of a turnaround in corporate profits is probably the second quarter [of 2002] at best," said Alan Kral, a money manager with Trevor Stewart Burton & Jacobsen Inc. "We might be looking at six consecutive . . . quarters of [declining] corporate profits."

Share prices typically start to climb about six months before a resurgence in corporate profits. But the profit outlook is far from pretty right now.

According to Thomson Financial/First Call - with more than 75 percent of the S&P 500 companies having reported - third-quarter profits have fallen 21.7 percent from last year's corresponding three-month period. Profits are projected to drop 15.8 percent this quarter and 4.5 percent in the first quarter of 2002.

`Lead the way'

Analysts are forecasting that U.S. firms will see their overall profits advance 15.6 percent for all of next year. That would require a significant turnabout in the final nine months of 2002, meaning stocks should begin to signal an improvement in the economy by staging a real rally later this year, experts say.

"Historically, [stock] markets lead the way well ahead of an economy coming out of recession," said Jonathan P. Murray, a first vice president of investments for Legg Mason Inc. So, "the bad news is that we're probably in a recession. But the good news is that the markets know this and are looking to rebound."

Elsewhere on the broad market, the Russell 2000 index, a benchmark of small-cap stocks, skidded 9.24, or 2 percent, to 429.41, and the Wilshire 5000 total market index slumped 235.26, or 2.3 percent, to 9,950.25.

The Sun-Bloomberg index of the top stocks in Maryland, tumbled 3.83, or 1.91 percent, to 196.67. BioReliance Corp. dropped $4.15 to $26.70, and Human Genome Sciences Inc. lost $2.30 to $41.67.

Enron Corp. sank $1.59, or 10 percent, to $13.81 after Moody's Investors Service cut the largest U.S. energy trader's credit rating and said it may downgrade the company's commercial paper rating. Enron tapped a $3 billion credit line last week because it has been shut out of the lending market for low-interest, short-term loans. Enron shares have fallen for nine straight trading days, losing 60 percent.

Microsoft falls $2.56

Microsoft Corp. slid $2.56 to $59.64, and General Electric Co. dropped $1.45 to $37.43, contributing to the S&P 500's drop.

EchoStar Communications Corp. fell $1.18 to $24.08 after it agreed to buy General Motors Corp.'s Hughes Electronics unit, the biggest U.S. satellite-TV service, for about $31.5 billion in stock, cash and assumed debt.

The transaction values each Hughes share at $18.44, based on EchoStar's closing price Friday, which is about a 20 percent premium to Hughes' last closing price.

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