Dow falls 205 points as news socks stocks

Weighing on the market are worries about GE, IBM and Middle East

April 12, 2002|By Bill Atkinson | Bill Atkinson,SUN STAFF

A raft of bad news, ranging from lower General Electric Co. profits to fears that the Middle East conflict could escalate, sent market indexes tumbling across the board yesterday.

The bellwether Dow Jones industrial average, an index of 30 large-company stocks, slid 205.65 points, or 1.98 percent, to 10,176.08 points.

The decline, analysts said, was propelled in part by General Electric's announcement that first-quarter profit fell for the first time in seven years. A report by newsletter SEC Insight that International Business Machines Corp. is being questioned by the Securities and Exchange Commission also rattled investors.

"Motherhood stocks like GE and IBM are being taken out behind the barn and spanked," said Alfred Goldman, chief market strategist at A.G. Edwards & Sons in St. Louis. "This is a market where confidence is very thin both up and down. If you can't buy GE, why would you buy Gee Whiz?"

The bad news didn't stop with the blue chips. Shares of brokerage stocks were battered because of a probe by the New York State attorney general into whether analysts at Merrill Lynch & Co. and other companies recommended certain stocks to investors to win lucrative investment banking business.

Merrill Lynch's stock sank $4.09, or 7.9 percent, to $46.90.

The conflict in the Middle East and worry that the war could spread and oil prices could be driven higher also contributed to the sell-off, analysts said.

"Frankly, anything could happen" in the Middle East, said Gil Knight, a mutual fund manager at Allied Investment Advisors in Baltimore. "The whole thing could explode, and then oil prices [could] suddenly jump up. There is just so much uncertainty right now and I think investors are ... negative about everything. It doesn't take much for them to spook a bit."

In addition to the Dow, the Standard & Poor's 500, which gives a broad measure of the market's performance, fell 26.78 points, or 2.37 percent, to 1,103.69 points. The Nasdaq composite index, heavy with technology stocks, tumbled 41.83 points, or 2.37 percent, to 1,725.24.

Year-to-date, the Dow has gained 1.5 percent, while the Nasdaq has lost 11.5 percent and the S&P is down 3.9 percent.

Elsewhere on the broad market yesterday, the Russell 2000 index, which is made up of small companies, fell 7.57 points, or 1.48 percent, to 503.73 and the Wilshire 5000 total market index slumped 231.18, or 1.2 percent, to 10,419.74.

Maryland index off 3.54

The Sun-Bloomberg index of the top stocks in Maryland fell 3.54 to 221.46. MedImmune Inc. dropped $3.69 to $34.06, and Ryland Group Inc. lost $2.41 to $96.80.

Declining issues led advancers 2 to 1 on the New York Stock Exchange. Consolidated volume came to 1.51 billion shares, moderately ahead of the 1.46 billion traded Wednesday.

Before yesterday's opening bell, Goldman had thought that the stock market could be setting itself up for a rally after Wednesday when the Dow rose 173.06 points.

"It died today," Goldman said.

But he still believes that the market is poised for a turnaround because the economy is growing stronger.

"We are still early in an economic recovery. ... The Fed [Federal Reserve] is not going to slam down on the brakes. Earnings are going to recover," Goldman said. "There has been a big pickup in fear and disenchantment. That is the condition you get when the market is ready to flip up."

`We are in a recovery'

Paul Kasriel, director of economic research at the Northern Trust Corp. in Chicago, said investors should focus on companies with low debt and strong balance sheets. "Now more than ever I think you have to be very selective in the stocks that you buy," Kasriel said.

He likes cyclical companies, such as automakers and businesses that manufacture industrial metals.

"We are in a recovery and these stocks should do relatively well," he said. Kasriel also likes companies that pay dividends.

"We have been through a phase where dividends didn't matter," Kasriel said. "I think that phase is over. They do matter a lot."

GE slid $3.45, or 9.3 percent, to $33.75 as its first-quarter results fell short of revenue projections. The conglomerate's performance is closely watched because GE has so many different types of businesses, ranging from financial services to manufacturing and industrial operations.

IBM dropped $4.82, or nearly 5.4 percent, to $84.19 after SEC Insight said the computer maker was the subject of a federal Securities and Exchange Commission inquiry. A spokeswoman said IBM does not comment on its relationship with government regulators.

After the market closed, the SEC said it had opened and closed an inquiry without action concerning IBM but did not offer any specifics. IBM rebounded to around $88 in extended trading.

Tyco International Ltd., which helped fuel a market drop in February, fell $2.24 to $29.05 yesterday after The Wall Street Journal reported that the sale of its plastics unit will be delayed because bidders are awaiting the results of an audit of the unit's financial statements.

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