A Slide That Not Even Greenspan Can Stop
Downgrades for Cisco and IBM drive the Nasdaq to its lowest close in a
year and a half, and monetary policy may have lost its power.
The Nasdaq fell to its lowest point in more than a year and a half as
downgrades of major stalwarts sent the tech sector into a downward
spiral. This marks the seventh consecutive session of losses for the
Nasdaq, which posted heavy losses yesterday following a
much-anticipated Fed meeting. Despite making a rare shift from an
inflation bias to an easing bias, the Fed's actions did not stem the
market's slide. "There is a feeling that the Fed cannot control the
capital markets by changing monetary policy as it used to do," said
Bruce McDermott, a member of the equity group at Deutsche Banc Alex.
Brown.
Downgrades for major players such as Cisco and IBM rocked the market
Wednesday. The Nasdaq crumpled to 2332.77, giving up 7.12 percent or
178.94 points. The warnings from hefty companies such as IBM and
International Paper hit the Dow hard also. The blue-chip index posted
heavy losses, closing the day down 2.44 percent, or 258.61, to
10325.76. Reflecting the diversity of the losses, the broad S&P 500
also fell to 1264.74, out 3.13 percent or 40.86 points. The Standard
100 dropped to 536.74, erasing 11.01 percent or 66.42 points.
"This kind of capitulation selling is what happens toward the end of a
bear market," said McDermott. "I think it is something that we have to
go through to find a bottom. Historically, we reach the end after
panic selling and investors almost giving stocks away."
Many investors apparently expected the Fed to cut interest rates on
Tuesday. But as McDermott points out, the consumer price index, which
was expected to rise just 0.2 percent, has actually increased 0.3
percent. The labor market doesn't usually loosen until the end of an
economic cycle, and for now it's still tight. The weakening economy
may be a bigger problem, but inflation remains a threat.
As for the possibility of a recession, Deutsche Bank economist Peter
Hooper believes we may be witnessing the symptoms. When consumer
confidence degenerates, savings rates increase; lower rates of
spending can lead to a recession. Fear of one may also have
contributed to today's selling.
Cisco Systems led the collapse today, having received a downgrade from
Merrill Lynch because of slowing technology spending. The router fell
12.57 percent, or $5.25, to close the day at $36.50. IBM fell on a
similar Merrill downgrade. Big Blue's Dow component fell $4.13, or
4.58 percent, to $86.
Lucent Technologies also fell, in heavy trading. The telecom equipment
maker dove 11.87 percent, or $2.06, to $15.31. Rival Nortel Networks
also had a harsh day, dropping $2.50, or 7.49 percent, to $30.88.
Equipment makers were in bigger trouble. Sycamore Networks plunged
15.18 percent, or $6.06, to close at $33.88. Juniper Networks skid
13.68 percent, or $98.19, to close at $98.19.
Microsoft posted heavy losses, sliding $3.31 or 7.39 percent, to end
at $41.50. Nor did rival Oracle fare much better, as it slipped $2.13
or 6.94 percent to $28.50.
On the NYSE, the day's most active issue took hits of its own. America
Online lost $3.51, or 8.61 percent, to finish at $37.25.
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