Dow drops 219, ending 4-day, 13.3% upsurge

Weak earnings fuel sell-off

other indexes also down

October 17, 2002|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

It was too good to last.

The Dow Jones industrial average fell 219.65 points yesterday on weak earnings from Intel Corp. and a move by investors to lock in profits after a four-day rally that pushed the index to its biggest percentage gain in nearly seven decades.

The Dow, which measures the performance of 30 blue-chip stocks, fell 2.66 percent to 8,036.03. In the previous four trading days, the index was buoyed by better-than-expected corporate earnings and gained 969.41 points, a 13.3 percent increase.

"Bear markets are replete with false rallies," said Alan Ackerman, market strategist with Fahnestock & Co. in New York. "The 13 percent move in the Dow over the four days was breathtaking. Conversely, it may have been too fast and too soon."

"It was kind of an earnings-fueled sell-off, coupled with the fact that we had four big days," said Angel Mata, a senior vice president with Legg Mason Inc. in Baltimore.

Mata said he was hoping during the sell-off that the Dow would not drop below 8,000, which "would be a psychologically positive thing."

What happens the rest of the week, Mata said, depends on how investors view IBM Corp.'s earnings, which were released after the markets' close yesterday, and a series of economic reports coming out today and tomorrow, including the Consumer Price Index.

Other indexes also slid yesterday.

The Nasdaq composite index, heavy with technology stocks, fell 50.02 points, or 3.9 percent, to 1,232.42. The S&P 500 index, a broader measure of market performance, shed 21.25 points, or 2.41 percent, to close at 860.02.

The Russell 2000 index, a benchmark of small-cap stocks, fell 9.67, or 2.7 percent, to 350.85, and the Wilshire 5000 total-market index jumped 59.91 to 14,751.64. Based on changes in the Wilshire, the value of U.S. stocks declined $239.33 billion.

The Sun-Bloomberg index of the top stocks in Maryland fell 1.73 to 173.69. Black & Decker Corp. lost $1.64 to $42.02 and Sandy Spring Bancorp Inc. declined $1.54 to $31.08.

Declining issues outnumbered advancing ones 3-to-1 on the New York Stock Exchange. Volume came to 1.6 billion shares, below 1.9 billion on Tuesday.

Yesterday's sell-off began early and continued on poor earnings news.

Intel had released its third-quarter earnings after the market closed Tuesday. Besides disappointing earnings, the world's largest chip maker said its fourth-quarter figures won't be much better. Intel's shares were the most actively traded stock on the Nasdaq, as 154 million changed hands. The shares fell $2.98, or 18 percent, to $13.54.

Intel wasn't the only disappointment, analysts said. Boeing Co. reported a 43 percent drop in its third-quarter earnings and lowered its projections for this year and next, and its stock dropped $1.65 to $30.50. In addition to its profit drop, the biggest airplane maker cut its sales and profit forecasts. Boeing also said it plans a fourth-quarter charge of $4 billion to cover the declining value of its pension-plan investments.

Motorola Inc., too, scaled back its sales and earnings forecasts for the fourth-quarter and next year, a day after reporting its first earnings gain in six quarters. Its shares skidded to a 10-year low, closing down $2.25 at $7.85.

Also yesterday, President Bush signed a resolution authorizing military action against Iraq, although some analysts said that had no role in the market decline. Others said it added to investor unease about the prospect of war.

"It's more anxiety of what would really happen if the U.S. would attack Iraq," Ackerman said.

Mata said, "One thing we are noticing is that when President Bush speaks, the market goes down. I'm a big Bush fan, but every time Bush speaks, the market sells off, I think because he puts Iraq right in your face again."

Despite the decline yesterday, some point to positive signs for the market.

Weak earnings, which had been a stumbling block for stocks quarter after quarter, appear to have strengthened, said Richard DeKaser, chief economist with National City Corp. in Cleveland. The majority of S&P 500 companies reporting third-quarter earnings have seen "positive surprises."

"The economy is muddling along, which is very different than a double-dip," DeKaser added.

"We're looking for a good fourth quarter, coming off a market that was deeply oversold, an economy trudging upward and earnings that will rebound, at least modestly," said Al Goldman, chief market strategist for A.G. Edwards & Sons in St. Louis.

While stocks still may have room to fall before hitting bottom, some suggest now is the time for investors to gradually get back into the market.

Ned Notzon, president of T. Rowe Price Associates' Spectrum Funds in Baltimore, said he has been slowly raising the percentage of stocks held in some portfolios over the past seven months. Portfolios that were 60 percent stocks, now hold 64 percent in equities. It's not because stocks are expected to outperform bonds in the next year, but that equities "are now trading at very attractive prices," he said.

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