Falling market bruises many

Nasdaq tumbles 4.2%

S&P 500 sinks below 800 for first time in 5 years

July 24, 2002|By William Patalon III | William Patalon III,SUN STAFF

Money manager Morry Zolet was at an Orioles game at Camden Yards with his three daughters Monday night when his cell-phone rang. It was a client - a good one - who'd had enough.

"He told me to liquidate both of his accounts," said Zolet, a senior vice president of investments for Salomon Smith Barney in Lutherville. "Here's a guy who was a student of the markets, who thought he understood his risk tolerance [and what it would take] to ride it out. People just do irrational things" when bear markets reach the extremes that U.S. stocks have reached in the past three weeks.

Stocks dropped again yesterday, with the Standard & Poor's 500 index closing below 800 for the first time in more than five years, prolonging a trend that puts that important benchmark on a pace to have its worst year since the depths of the Great Depression. And though the U.S. economy appears to be growing - in a recovery from one of the shortest recessions on record - experts can't say with certainty when the bleeding will stop.

Stocks "look to be closer to the bottom than they were a day ago," Baltimore money manager James Hardesty said with a rueful laugh.

The S&P 500 yesterday slid 22.15 points, or 2.7 percent, to end the day at 797.70, its lowest close since May 1, 1997. Down 31 percent this year, the key measure used by professional investors hasn't fallen that much in any year since 1937, when it lost 39 percent.

The Dow Jones industrial average tumbled 82.24 points yesterday, a 1.1 percent decline that brought that 30-stock blue-chip index to 7,702.34. That erased an earlier 110-point gain characteristic of the whipsaw trading action of recent days.

The Nasdaq composite index closed at 1,229.05, down 53.60 points, or 4.2 percent, its largest one-day loss since October.

Professional and individual investors alike are having a difficult time gauging the market's action, including the accelerating losses of the last three weeks, chiefly because the current downturn can't be gauged by previous downturns, said Daniel T. McHugh, president of Lombard Securities Inc. in Baltimore. Because of that, there's no telling when the selling will end.

In an ideal environment, "we should be pretty close to the bottom," McHugh said. "The question is: Will investors be just as over-emotional on the downside as they were on the upside? I think there's a real chance that will happen" - making stocks just as under-valued at the eventual bottom as they were over-valued at the early 2000 market top.

Recent sessions have seen intraday roller-coaster trading, with huge price swings within the course of a single day. Such swings are often a sign that a market bottom has been reached and a rebound is imminent, but the recent volatility probably hasn't been of a magnitude to signal a bottom, said Hardesty, president of Hardesty Capital Management in Baltimore.

The market may have further to fall, because so many shares remain overvalued despite the painful decline, said Robert Mewshaw, president of Van Sant and Mewshaw, a Lutherville money management firm.

Elsewhere on the broad market yesterday, the Russell 2000 index, a benchmark of small-cap stocks, slid 15.66, or 4.1 percent, to 363.99 and the Wilshire 5000 total market index slumped 223.69, or 2.9 percent, to 7,601.84. Based on changes in the Wilshire, U.S. stocks yesterday lost $257 billion in total value.

The Sun-Bloomberg index of the top stocks in Maryland tumbled 5.41 to 166.77. Compudyne Corp. dived $4.47 to $7.40, and F&M Bancorp of Frederick fell $2.95 to $27.05.

Declining issues led advancing ones 5-to-1 on the New York Stock Exchange yesterday in its third busiest session ever.

Volume came to 2.44 billion shares, compared with 2.27 billion shares that were traded Monday.

Financial stocks slid for a second straight session as a Senate subcommittee investing the collapse of Enron Corp. heard testimony from representatives of J.P. Morgan Chase & Co. and Citigroup Inc. Citigroup shares tumbled $5.04, or 15.7 percent, to $27, and J.P. Morgan lost $4.44, or 18.1 percent, to $20.08.

Tyco International Ltd. fell $1.20 to $10.65 after reporting quarterly results in line with expectations, but saying it might miss the mid-August deadline set by the SEC for executives to sign off on financial results.

The battered telecommunications sector retreated further on discouraging results from two of its most high-profile companies. AT&T Corp. fell 72 cents to $8.80 on a $12.7 billion second-quarter loss due in part to a drop in the value of its cable TV business. Lucent Technologies Inc. tumbled 45 cents to $1.65 after reporting a quarterly decline of $7.9 billion and another 7,000 job cuts.

Novellus Systems Inc. dropped $2.80 to $26.75 after releasing results that met expectations but lowering forecasts for its current quarter.

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