Day of bad news sinks markets

Friday, October 13th 2000, 12:00 am
By: News On 6

Economic outlook worries investors

By John Kirkpatrick / The Dallas Morning News

Stock markets took an ugly beating Thursday, with the Dow Jones industrial average plunging 379.21 points and the tech-heavy Nasdaq hitting its lowest point of the year.

Thursday's sell-off was the worst day yet in a string of abysmal days on Wall Street. Taking the most blame were three factors:

•Middle East violence that raised the specter of higher oil prices and inflation.

•An earnings warning from Home Depot Inc. that might indicate a slowdown in consumer spending.

•Investors who were already jittery about their portfolios' prospects amid recurring earnings disappointments.

"That is all coming together, and now with this major unknown in the Middle East, these are what bottoms are made of. Now whether that's today or a month from today, you can't know," said Scott Marcouiller, vice president and market analyst at A.G. Edwards & Sons.

By the time regular trading ended, the Dow had plunged to 10,034.58, a 3.6 percent decline – close to the psychologically important 10,000. It ranked as the fifth-largest point drop ever.

The Nasdaq, beleaguered for several days, fell 93.81 to 3,074.68, down 3 percent. It is 39 percent below its March 10 record.

The sliding market leaves investors more uncertain about the nation's economic prospects.

"Market psychology is more fragile than it has been in a long time," said Sung Won Sohn, chief economist at Wells Fargo Bank in Minneapolis.

More than half of the Dow's loss came from three of the 30 stocks that make up the index – Home Depot, J.P. Morgan & Co. and International Business Machines.

Corporate earnings have been the subject of worry on several fronts, including a weak Euro that would cut into company profits.

Investors already have suffered through earnings warnings form a variety of companies and notably on tech stocks.

Home Depot stunned investors early Thursday, saying the nation's largest home improvement retailer's earnings would fall short of expectations. Shares dropped $13.81 to $35.13, a 29 percent decline. Some other retailers suffered in Home Depot's wake. Wal-Mart fell $1.19 to $44.13.

Financial stocks took a hit, too, as investors worried that rising oil prices would boost inflation.

J.P. Morgan & Co. closed at $136, down $10.81.

Many oil stocks escaped the market's savagery, on speculation that higher oil prices would be a benefit. Irving-based Exxon Mobil rose 38 cents to $94.13.

The price of crude oil jumped Thursday after an attack on a U.S. Navy ship in Yemen. U.S. officials described the explosion as an apparent terrorist bombing.

On the Nasdaq, several big names were hit. Once again flailed was Yahoo, which closed at $56.63, down $8.75.

A broad downswing in the market can be an appropriate response – but Thursday's reaction was too harsh, said Bob Cordiak, senior vice president of investments at Dain Rauscher Inc.

Despite the "slaughtering" of Home Depot on Thursday, the company's earnings growth will be "respectable" this year, he said, even with the lowered expectations.

Some stock increases have gone too far, "and so rational behavior is coming back," Mr. Cordiak said. "But they always take it too far on the upside, and they take it too far on the downside."

Mr. Marcouiller said he holds a similar sentiment.

"Are we overdone on the downside? Have we overdiscounted the slowdown in the economy and the slowdown in earnings? The answer is yes. But this is what markets do."

The market will come back around "when enough people wake up on the same day and say, 'Things have been beaten down, and it can't get worse and there are a lot of good values out there.'" Mr. Marcouiller said.

"Or it's triggered by an actual event, like a tech company that reports blowout earnings or if we get an ease in the Middle East tensions."

He did offer a stock tip. "A lot of people are drinking more because of this market, so maybe buy some Anheuser-Busch."