Bears pull Dow under 10,000

Thursday, October 19th 2000, 12:00 am
By: News On 6

Bargain hunters help markets erase some early losses

By Bill Deener / The Dallas Morning News

Some serious mayhem greeted investors Wednesday morning as the Dow Jones industrial average plunged 433 points in 20 minutes, blowing right past the 10,000 mark for the first time since March.

Bargain hunters brought the stock market back, but by the close of trading all the major indexes still lay in negative territory. Another earnings disappointment – this time from IBM Corp. – triggered the initial sell-off, but the selling was indiscriminate across most sectors.

"The reckless abandon in which stocks are being sold clearly shows that the market is gripped by fear," said Bryan Piskorowski, market analyst at Prudential Securities Inc. in New York.

"There has been a lot of damage done here over the past six weeks, and you can make the argument that we are getting close to the bottom," he said.

The Dow dropped 114.69 points, or 1.1 percent, to close at 9,975.02 and is now down 13.2 percent for the year.

The technology-laden Nasdaq composite index declined 42.40 points, or 1.3 percent, to 3,171.56, and is down 22.1 percent this year. The Nasdaq bobbed in and out of positive territory Wednesday after rebounding from a 188-point slide in the first hour.

The broader Standard & Poor's 500 index was down 7.84 points, or 0.58 percent, to close at 1,342.13. Declining issues outnumbered advances by about 3-to-1 on the New York Stock Exchange. Volume was 1.17 billion shares, well ahead of the 906.67 million shares Tuesday.

The market is being whipsawed by a number of factors, including higher energy prices, a weak euro and a slowing economy. All of these factors present a formidable head wind to corporate profits, said Bill Barker, an investment strategy consultant with Dain Rauscher Inc. in Dallas.

And if all that weren't enough, October is typically a troublesome month for the markets as portfolio managers at the large mutual funds sell some of their stock positions to book losses for tax purposes, Mr. Barker said.

In fact, Oct. 19 is the 13th anniversary of the 1987 market crash. And the big crash of 1929 was in October.

"The portfolio managers dominate this market, and they will move out of one sector and into another in a day's notice," said Mr. Barker.

In fact, he said, smaller investors for the most part have not panicked because they have made money with each downturn.

"I think the brokers are more panicked than the small investor," Mr. Barker said.

Dallas area investor, Ashley Harkness, who works for GE Capital, probably reflects that sentiment. The sell-off Wednesday prompted him to move more of his savings into stocks.

For most of the year, Mr. Harkness avoided stocks because of their high valuations at the beginning of the year and the volatility through the spring and fall.

"I'm moving more into stocks, taking advantage of the prices. It's a great buying opportunity," Mr. Harkness said.

Another investor, Dr. Leonard Saunders, a family physician, agreed: "I'm not changing my 401(k) at all. This is a fantastic buying opportunity."

But over the last six weeks, every time the market tries to mount a rally, along comes another earnings disappointment.

This time shares of IBM Corp., the world's largest computer company, fell $17.56 a share, or 16 percent, to $95.44 after the company said third-quarter sales rose a less-than-expected 3 percent. IBM said it couldn't meet demand for software and some server computers.

Shares of Chase Manhattan Corp., the No. 2 U.S. bank, and its merger partner J.P. Morgan, also fell after Chase said third-quarter profit fell 19 percent on losses from its investments in start-up companies.

J.P. Morgan shares plunged in the morning from $137.63 to $118, but recovered by late afternoon and were off $3.38 to $134.25. Chase slipped $1.06 to $36.88.

"About 40 percent of the Dow's decline [early in the day] could be attributed to two stocks, IBM and J.P. Morgan," said Mr. Barker. "Once those stocks stabilized, the bargain hunters came in and the market calmed down."

The market opened on news that consumer prices jumped 0.5 percent in September, the biggest advance since June, as energy prices rebounded sharply. The increase renewed fears that the Federal Reserve would keep interest rates unchanged, rather than lowering them, at its November meeting.

Most market experts agree that many sectors of the market are oversold and that investors should be able to start picking up some bargains. However, it could take several weeks before the market finds the bottom, Mr. Piskorowski said.

Companies that don't meet earnings will be clobbered, he added.

For example, the market showed no mercy towards Irving-based Michaels Stores Inc., which saw its shares plummet by $15.63 a share, or 44 percent, to close at $19.81 on Wednesday. About 10.5 million shares traded, about 20 times the normal average daily volume of about a half-million shares.

The company warned investors that third- and fourth-quarter results will be lower than anticipated because of softer sales trends. Michael Rouleau, Michaels' chief executive officer, blamed the weaker sales on "general economic conditions and uncertainties."

The company expects to earn about 40 cents a share in the current quarter, compared with earlier estimates of 45 cents a share. Also, earnings for the year will be about $2.40 a share, which is 20 percent higher than the $2.01 per share earning in 1999.

Mr. Piskorowski said the market is still weeding out the "excess exuberance" that has built up over the last two years.

"We are certainly probing for a bottom," he said. "I would view it as a positive that we didn't break through the 3,000 level on the Nasdaq. That seems to be the floor there."

Staff writers J.C. Conklin and Maria Halkias and Bloomberg News contributed to this report.