10/9 Nasdaq Stocks May Fall More as Growth, Demand Slow: U.S. Stocks Outlook
Nasdaq Stocks May Have More Room to Fall: U.S. Stocks OUtlook
New York, Oct. 9 (Bloomberg) -- The Nasdaq Composite Index
has lost about a quarter of its value since its July high, and
few investors expect a turnaround anytime soon as slowing
economies prompt companies to spend less on technology.
Hardware and software companies such as Dell Computer Corp.
and Microsoft Corp., which helped drive the eight-year bull
market, are among the stocks that have knocked the Nasdaq down
5.0 percent this year, while the Standard & Poor's 500 Index has
gained a little more than a percent.
''Half of all capital spending in the U.S. is on technology
and when you are experiencing this kind of slowdown, you expect
adjustments,'' said Henry Cavanna, a managing director and money
manager at J.P. Morgan Investment Management Inc. which oversees
$301 billion.
This week alone, the Nasdaq lost 7.6, even with a 5.2
percent gain today, while the Dow Jones Industrial Average
managed a gain of 1.5 percent and the S&P index fell 1.8 percent.
''Pessimism has totally taken over and we have not
necessarily reached a bottom'' for computer-related shares, said
Ted Bridges, a money manager with Omaha, Nebraska-based Bridges
Investment Counsel Inc. with $1.5 billion in assets. ''There is a
lot more fear out there than there was a week ago.''
Investors are no longer willing to pay high prices for
computer and Internet companies whose earnings are slowing. Dell,
which has slipped 22 percent since its high of 68 1/16 on
September 16, trades at 51 times its estimated earnings, while
Microsoft Corp., the world's largest computer software maker, is
down 18 percent from its July high. It still trades at 45 times
expected earnings.
While large brand-name issues have fallen, less well known
companies have also been hard hit. Tellabs Inc., a maker of
equipment to carry data over phone networks, has fallen 59
percent since the Nasdaq touched its high; PeopleSoft Inc., the
No. 2 maker of applications software, dropped 51 percent and
Ascend Communications Inc. fell 24 percent.
Wall Street Slows
Another blow to high-technology stocks came from Wall Street
itself. Financial services firms are bracing for the largest
round of job cuts unrelated to mergers since 1995, as losses from
Russia and other emerging markets pile up and investment banking
slows. As staffs shrink, so will spending on technical support.
''Wall Street is a business under pressure, and it's now
downsizing and spending less across the board,'' said Cavanna.
''Investment banks have slowed their requirements for laptops and
desktops and this reduction in spending is not yet reflected by
analysts in earnings reports,'' he said.
Merrill Lynch & Co. plans to fire up to 2,000 jobs,
according to people familiar with the company. Salomon Smith
Barney Inc. may fire as much as 5 percent of its employees,
people at the firm said. ING Groep NV last week said it will cut
1,200 workers.
Competition is another problem for Internet stocks, as
investors weigh the effect of booming competition in the
industry.
Yahoo Inc., the world's No. 1 Internet search directory
which sells at 268 times this year's estimated earnings, lost 17
percent this week even as it reported better-than-expected
earnings in the third-quarter. America Online Inc. and Excite
Inc. have also declined in recent days.
IPO Freeze
Companies that made initial public offerings on the Nasdaq
stock market in the last six months, have been among the biggest
casualties. Horizon Medical Products Inc. which began trading in
April, lost 87 percent from its IPO price. Software maker
Evolving Systems Inc. plunged to 2 1/16 from its IPO price of 14
in May.
IPO's, which helped fuel the enthusiasm for Nasdaq stocks,
have all but dried up. Excluding foreign issuers and bank
conversions to stock ownership, there have been no U.S. IPOs in
October, after a general dearth since mid-August.
The slump means ''the IPO market will be moribund for longer
than we thought,'' said Steven Tuen, director of research at IPO
Value Monitor, a research firm.
Declines have been widespread, as concern mounts about
slowing growth from Asia to Latin America. Through Wednesday, the
average stock on the New York Stock Exchange was down 39 percent
from its 52-week high, while the average Nasdaq stock was down 52
percent, according to Salomon Smith Barney Inc.
Broad Declines
The U.S. market, as measured by the Wilshire 5000 Index, has
now lost $2.7 trillion of its value since peaking at $12.4
trillion on July 17, according to Wilshire Associates Inc. of
Santa Monica, California. The Russell 2000 Index of small stocks
lost 9 percent on the week and remains 36 percent down from its
April 21 record.
The situation isn't likely to improve soon for any U.S.
stocks. Federal Reserve Chairman Alan Greenspan said in a speech
this week to the National Association of Business Economics that
''the outlook for 1999 for the U.S. economy has weakened
measurably.'' That further fueled concerns that slowdowns from
Asia to Latin America will cut U.S. growth and corporate profits
and even companies with almost no exposure to non-U.S. markets
will be hurt by slowing economic growth.
''There is significant concern about a recession next year,
or maybe sooner,'' said Joe Stocke, a senior portfolio manager
Meridian Investment Co., a unit of First Union Corp. that
oversees $2.5 billion. '' There is concern whether the financial
problems that developed in Asia will be contained or whether they
will hit country after country.''
J.P. Morgan Securities Inc. Co. revised its outlook for the
U.S. economy next year, saying it will lapse into recession in
1999.
Analysts now expect operating profit growth of the companies
that constitute the S&P 500 to shrink 3.1 percent this quarter,
according to First Call Corp., which tracks analyst estimates.
Analysts had expected 10.2 percent growth at the beginning of the
year.
For the year, analysts expect S&P 500 operating profits to
grow 3.6 percent, down from 11 percent growth in 1997, First Call
said. Fourth-quarter operating earnings are expected to grow 8.2
percent.
''There's no confidence out there at all about who's going
to be able to earn what they say they will,'' said Jonathan
Kolle, portfolio manager who oversees about $1 billion in equity
investments at Wilmington Trust Corp.
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