WSJ market comments:
Investors saw little reason to put money into the stock market. Bonds rose as investors retreated to the relative safety of government securities. Tech stocks again bore the brunt of the selling, and all of the 30 stocks on the industrial average finished lower. Dow tech components fell, while retail and financial shares contributed significantly to the blue-chip indicator's retreat.
Stocks were down solidly from the open, but selling intensified in the final hour of trading. Technical selling overcame any attempt to rally, with the Nasdaq composite below 2000 and the industrial average below 10300, said Larry Wachtel, market strategist at Prudential Securities. But the murky profit picture, as well as weakness in Japan, where the Nikkei 225 average dropped Monday to its lowest close in 16 years, set the tone for the day.
"The corporate profit picture is the bottom line, of course, and I don't think people can really get their arms around this," Mr. Wachtel said. "The question is: 'Is there a light at the end of the tunnel in the second half?' ... If one is making the case for a 2002 recovery, there is no business buying stocks in March of 2001."
Kent Engelke, senior vice president and capital market strategist with Anderson & Strudwick, said emotional selling drove stocks lower Monday amid continued realizations about how tech firms will suffer in the slower economy. He said the Nasdaq composite could see 1500 before regaining its footing if negative emotions intensify, but saw reason to suggest a bottom is coming.
"I think that is something that we need to get a market bottom," Mr. Engelke said of the negative sentiment on Wall Street. "But I would be hesitant to say that the Nasdaq is going to rally above the 2500 mark in the immediate term."
Shares of Internet, computer and telecommunications stocks dragged the Nasdaq composite lower, and the Nasdaq biotech index dropped 9.5%. Stocks such as Honeywell, General Electric and Minnesota Mining & Manufacturing and Boeing all helped sink the industrial average. Even so-called defensive stocks, such as tobacco and pharmaceutical issues that have advanced recently despite the tech-stock led weakness, joined in the retreat Monday.
The decline was dramatic, but wasn't surprising to market watchers. Alan Ackerman, executive vice president and market strategist at Fahnestock, said there is little confidence on Wall Street given the uncertainty about the earnings outlook. Worries that the Federal Reserve won't do enough quickly to support the economy and the stock market also contributed to the fall.
"Over the weekend, the media continued to pound away about a big drop coming for stocks," Mr. Ackerman said. "Nasdaq was at a crossroads at 2000, and we've broken through that. There are plenty of clouds out there, and no indication that we will have a break in the clouds immediately ahead."
The S&P 500 index dropped Monday into bear-market territory, down more than 20% from its highest close of 1527.46 on March 24, 2000. A 20% drop from a high is widely considered the sign of a bear market. The index had slipped into bear-market territory on an intraday level several times this year, but until Monday it had bounced back each time before the close. The Nasdaq composite remains mired in bear-market territory, down 62% from its high.
But market watchers focused on the profit picture as they watched for clues about when the economy and earnings might recover. Prudential's Mr. Wachtel said he didn't see much sense in worrying that the S&P 500 is technically in a bear market, since so much damage already has been done to stocks.
"What good is it to identify a bear market?" he asked. "What is important now is to start looking around for a bottom. These ideas of bear and bull don't tell you anything other than looking in a rear-view mirror."
Earnings guidance was weak again Monday. Shares of Ericsson fell $2.09, or 25%, to $6.09 by 4 p.m. EST in the U.S. after the telecommunications giant warned that it expects to post a loss in the first quarter. And the market continued to feel the fallout from last week's revenue warning from semiconductor maker and Dow component Intel, as well as news Friday that Cisco Systems will trim its work force as it feels the effects of the economic slowdown. Intel fell 5.7% Monday, extending Friday's 11% slide, while Cisco lost 8.8%.
Meanwhile, comments by a prominent market watcher about the outlook for earnings in the slowing economy didn't help soothe Wall Street's worries. Edward Kerschner, chief strategist at UBS Warburg, cut his firm's estimate for 2001 operating earnings for companies in the S&P 500, acknowledging the effect of the slowing economy, but also forecast a rebound next year.
Investors will be keeping a close eye on economic data this week. Retail-sales figures Tuesday, as well as the producer-price report and industrial-production numbers Friday, could offer indications about how much the Fed may cut interest rates. Following two half-percentage-point cuts in January, most expect another half-point cut at its March 20 policy meeting to bolster the economy. |
