Nasdaq Dives Below 2,000, Dow Loses 436
Monday March 12, 4:55 pm Eastern Time
By Haitham Haddadin
<<NEW YORK (Reuters) - Stocks plummeted on Monday, with the Nasdaq composite index closing well below the key 2,000 level and down a whopping 62 percent from its high a year ago, after Cisco Systems Inc. (NasdaqNM:CSCO - news) injected another dose of gloom by proposing steep lay-offs in the weakening economy.
``There is certainly fear out there -- fear and disappointment,'' said Edgar Peters, chief investment officer at PanAgora Asset Management Inc., which manages $17 billion. ``So many people believed in the New Economy story to such an extent and to see all those dreams completely dashed in front of you is demoralizing.''
Lots of records were shattered in Monday's gloomy session.
The Standard & Poor's 500 Index (.SPX), which tracks the share prices of America's most valuable companies, officially plunged into its first bear market -- down more than 20 percent from its high -- since the 1987 stock market crash.
The broad wave of selling that gripped Wall Street intensified in the last hour of trading, and shaved off 436 points from the blue chip Dow Jones Industrial Average (.DJI) -- its fifth-largest point drop ever.
``What we are seeing today is a lot more anxiety and capitulation in some respects,'' said Henry Herrmann, chief investment officer at Waddel & Reed, which manages $4 billion. ''People are starting to get really worried. They are just selling.
The tech-laden Nasdaq index (.IXIC), which exploded to a record high of 5,048.62 a year ago on March 10, fell a whopping 129.40 points, or 6.30 percent, to 1,923.39, with more than four stocks down for every one that rose. It was the weakest Nasdaq close since Nov. 19, 1998, when it finished at 1,919.68. The last time the Nasdaq traded under the 2000 mark was Dec. 16, 1998.
The Dow plunged 436.37 points, or 4.1 percent, to 10,208.25, its lowest close since late Oct. 2000 as all 30 stocks making up the blue chip index fell. The broader S&P fell 53.26 points, or 4.32 percent, to 1,180.16. The S&P is now officially in bear territory, down 22.73 percent from its closing high at 1,527.46 reached on March 24, 2000.
Technology sector investors were also spooked after Sweden's Ericsson (NasdaqNM:ERICY - news), the world's third biggest mobile phone maker and leading network infrastructure supplier, added its voice to the corporate chorus of gloom. Ericsson warned of a quarterly loss, and its stock and those of rivals like Nokia Corp. (NYSE:NOK - news) , the mobile phone titan, fell. Ericsson lost $2-3/32 to $6-9/32.
``It's very much all the same song with a different verse,'' said Bill Meehan, chief market analyst at Cantor Fitzgerald, who is in the camp that sees Nasdaq plunging much further this year as the corporate earnings picture turns bleaker.
More than 320 stocks hit new lows on Nasdaq, including Cisco, the top maker of networking equipment for the Internet, which dropped $1-13/16 to $18-13/16 in heavy trading. The stock slid to $18-3/8 earlier to its lowest level in over two years, and the weakness hit the shares of rivals. Large Cisco supplier Jabil Circuit (NYSE:JBL - news) shed $2.70 to $20.80 after UBS Warburg cut its rating on the weakness in Cisco.
Late Friday, Cisco Chief Executive John Chambers cited a better than a 50-50 chance that the slowdown in demand and capital spending by customers is going to be more than a six-month phenomenon.
That comment further shook people, said Graham Tanaka, president of Tanaka Growth Fund, which manages $200 million. ``In the past, you had corrections that might normally last only a couple of quarters,'' added Tanaka.
The Nasdaq now is down 61.9 percent from its March 2000 high as profit warnings mount in the flagging economy. That drop surpasses its drubbing of 59.9 percent during the 1973-74 prolonged bear market.
Adding to the sour mood, Ed Kerschner, UBS Warburg's chief portfolio strategist, cut his 2001 earnings outlook for companies in the Standard & Poor's 500 Index by 3.5 percent because of a drop in manufacturing activity and cuts in corporate spending.
Investors also fretted about the economic problems in Japan, which could have a ripple effect on global markets, said Waddell & Reed's Herrmann. Tokyo's benchmark Nikkei average (.N225) closed down 456.53 points or 3.62 percent at 12,171.37, the lowest close since April 1985.
There were also lingering worries the U.S. Federal Reserve may not be aggressive in cutting interest rates after recent economic data, like Friday's jobs and payroll figures, came in stronger than expected.
Bear Stearns chief economist Wayne Angell said the Fed will likely only cut interest rates by half a percentage point at its next policy meeting March 20, adding that would still leave the U.S. central bank well behind the curve.
The U.S. central bank needs to lower the short-term borrowing cost by another full percentage point to stimulate the economy, Tanaka said.
``The New Economy is definitely in a recession. Now the danger is that if the Fed keeps its foot on the throat of monetary policy'' it could strangle the entire economy because the New Economy drags the old economy down, Tanaka said.
``And the longer we have a recession in the New Economy, the more likely it is to spread to Europe and Asia.''>> |
