Dow Falls Past 10,000 to Hit 5-Month Low

By KATHY M. KRISTOF and THOMAS S. MULLIGAN

Aug. 31, 2001 12 AM PT

TIMES STAFF WRITERS

The Dow Jones industrial average sagged below the crucial 10,000 mark Thursday as stocks fell to their lowest levels in five months, hammered again by profit warnings and dour economic reports.

The bleak profit forecasts from technology bellwethers Sun Microsystems and Corning reinforced investors’ worries about disintegrating corporate earnings and the weak U.S. economy, analysts said.

“Investors are looking for a reason to believe, and they’re not finding one,” said Mario De Rose, market strategist for Edward Jones in St. Louis.

Major market gauges now are within striking distance of the lows reached during last spring’s sell-off, and have wiped out their gains of the last 2 1/2 years. Given the downward trend, traders are bracing for a dismal September.

“There’s plenty of bad news and there’s a big gray cloud hanging over this market,” De Rose said.

The Dow sank 171.32 points, or 1.7%, to 9,919.58--its first close below 10,000 since April 9. The broader Standard & Poor’s 500 index fell 19.57 points, or 1.7%, to 1,129.03. The technology-laden Nasdaq composite index tumbled 51.49 points, or 2.8%, to 1,791.68.

Nearly two stocks fell for every one that rose on both Nasdaq and the New York Stock Exchange, where trading volume picked up from this week’s thin pace. More than 190 stocks hit 52-week lows on Nasdaq.

Trading curbs to guard against cascading computer-driven selling went into effect on the NYSE at 2:09 p.m. EDT after the Dow tumbled 210 points.

Sun, which makes networking computers, fell $2.36 to $11.07--its lowest price since late 1998. The company has said it stands to lose money this quarter after Japanese and European sales failed to meet expectations amid sluggish economic growth. Sun was the most actively traded stock on Nasdaq, and earlier sank as low as $10.40.

Corning fell $2.55 to $12.05. The world’s top fiber-optic cable maker is cutting jobs and shuttering plants due to slack demand.

Corning, which at one point hit a fresh two-year low of $11.66, also said overall market growth for optical fiber in 2001 will be significantly less than previously forecast.

The warnings from Sun and Corning came on the heels of a string of dire profit reports from companies across several sectors of the economy. And prospects may not brighten soon, analysts said.

“It’s more of the same, again the classic squeeze on corporate profit margins,” said Richard Babson, president of Babson-United Investment Advisors. “Until there’s actual evidence that it’s going to turn, there’s not going to be any long-tern sustainable rally in the market.”

Jittery investors got little cheer from Thursday’s economic data. One report showed that July consumer spending grew at its slowest rate in nine months, while a report on consumer debt showed a hike in past-due credit card accounts--another negative sign. First-time claims for state unemployment benefits fell slightly for the week of Aug. 25. But the number of Americans collecting jobless benefits hit a nine-year high.

This week’s dreadful performance--the Dow has shed 500 points since last Friday--is again stirring up talk that the market may have hit bottom. Investor sentiment has turned so negative that it may set the stage for a rebound, some analysts believe.

“It hurts so bad right now that it’s got to be good,” said Arthur Micheletti, chief investment strategist for Bailard Biehl & Kaiser in San Mateo.

But the same was heard when key indexes hit their lows last spring. Investors who snapped up tech stocks back then in hopes of buying at the bottom have plenty to regret today. In addition to Sun, popular tech names such as Oracle, off $1.35 Thursday to $12, and JDS Uniphase, down 69 cents to $6.45, have all fallen back through last spring’s troughs to hit 52-week lows.

Some analysts also note that investors have yet to face the kind of hair-raising event that has characterized many previous market bottoms.

“We’ve never had that day or week where it just gets scary, where you go home wondering how the international markets will open,” said James Paulsen, chief investment officer for Wells Capital Management in Minneapolis. “There hasn’t been that investor capitulation that you saw in the 1987 crash, in the 1998 Asian abyss or the 1994 Orange County derivative crisis.”

Instead, the sideways market brings back memories of the 1970s, Paulsen said. The Dow gained a mere 5% during that tumultuous decade--an average annual return, not including dividends, of 0.5%. With the Dow back below 10,000, investors are basically where they were in March 1999. Tech investors have fared even worse.

Paulsen believes investors in U.S. stocks also may be increasingly unnerved by the market’s refusal to respond to the Federal Reserve’s seven interest rate cuts this year.

“It conjures up the idea of pushing on a string, like they’re doing in Japan,” Paulsen said. “Japan keeps dropping rates and its stocks keep sliding.”

The Japanese stock market fell this week to levels not seen since 1984. The benchmark Nikkei-225 index slipped another 41.31 points Thursday to 10,938.45.

Early today the Nikkei was down 1.3% to 10,797.

In other foreign markets Thursday, German stocks slid 2.7%, the Singapore market fell 1.2% and the Brazilian market fell 1.4%.

American investors, meanwhile, are showing signs of cracking. Investors pulled out $1.2 billion more than they put into equity mutual funds in July, a mutual fund trade group reported Thursday. It was the third outflow this year and the first since March.

Frank Glaser, a retiree from Palos Verdes, isn’t selling yet. But he isn’t buying either.

“When I looked at the market this morning and I saw it was going down and down, I thought this is scary,” he said. “The way the stock market keeps going down, I think is really affecting how people are looking at things.”

Markets will be closed Monday for Labor Day, and many analysts are expecting a relatively quiet session today as investors head out for the holiday weekend.

Among Thursday’s highlights:

* Tech-sector issues down sharply included Cisco Systems, off $1.07 to $16.01; Yahoo, off 82 cents to $11.32; Juniper Networks, off $1.11 to $14.43; IBM, off $3.77 to $100.36; and Broadcom, which lost $2.91 to $30.96.

* Dow member Microsoft lost $3.31 to $56.94 after the European Commission expanded its investigation to look into whether the U.S. software company is illegally tying its Media Player to its Windows operating system.

* Oil services firms fell, with Schlumberger off $2.06 at $48.84 and Halliburton down $2.15 at $28. The Philadelphia oil services index tumbled to yet another 52-week low, at 77.39, continuing a slide begun in early July on worries over softer natural gas prices. The oil index bounced back slightly to close at 77.51.

* Many retail shares slumped in the wake of the July spending data. Home Depot lost $1.18 to $45.82, Federated Department Stores slid $1.10 to $36.45 and American Eagle Outfitters dropped 76 cents to $24.92.

But Ross Stores inched up 23 cents to $30.01 and Pacific Sunwear gained 7 cents to $16.57.

* Investors shifted some funds into “defensive” sectors, boosting the shares of groups such as tobacco, soft drinks, food, and home builders.

Among the Dow issues, tobacco giant Philip Morris rose 71 cents to $47.94. The firm on Wednesday raised its cash dividend 9%.

Other winners included Coca-Cola, up $1.09 to $48.79; Hershey Foods, up 50 cents to $64.50; and Centex, up $1.26 to $43.37.

* In the Treasury bond market yields inched up on longer-term issues after falling sharply earlier in the week, as some bond traders took profits.

The yield on the two-year Treasury note rose to 3.62% from 3.61% Wednesday. The yield has plunged from 4.24% in early July.

The yield on the benchmark 10-year note rose to 4.81% from 4.77%.

In currency trading the dollar weakened against the euro and the yen.

* Pop star Michael Jackson opened the trading day on Nasdaq on Thursday and his appearance drew screams from fans outside Nasdaq’s Marketsite on Times Square in midtown Manhattan. But the enthusiasm failed to carry through to Wall Street trading desks.

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Bear Tracks

Wall Street’s bear market has pummeled most major stock indexes this year, including some that had gained last year even as the broad market began to slide. A sampling of key indexes:

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Pctg. change: Index 2000 2001 S&P; small-cap +11.0% +1.7% Dow transports --1.0 --4.7 S&P; mid-cap +16.2 --5.1 Dow industrials --6.2 --8.0 NYSE composite +1.0 --10.8 S&P; 500 --10.1 --14.5 Dow utilities +45.5 --17.4 Nasdaq composite --39.3 --27.5

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Source: Times research

Times staff writer Liz Pulliam Weston and Reuters contributed to this report.

Market Roundup, C6-C7

Consumer spending: U.S. consumer spending slowed in July. C3

Consumer spending: U.S. consumer spending slowed in July, despite a rise in incomes. C3