Blazing economy feeds Wall Street jitters


Monday, July 31st 2000, 12:00 am
By: News On 6


By Richard Alm / The Dallas Morning News


Renewed worries about inflation, interest rates and profits pushed stocks lower Friday, ending Wall Street's worst week since technology stocks took a nose dive in April.

The technology-heavy Nasdaq composite index took the brunt of the day's bearish sentiment, closing Friday down 179.23 points at 3,663.00. For the week, the tech barometer plunged 431 points, or 10.5 percent, compared with a 1,125-point drop, or 25 percent, during the second week of April.

The Dow Jones industrial average finished Friday's trading day at 10,511.17, down 74.96 points from the previous day's close and 222 points for the week. The Standard & Poor's 500 index fell 29.73 to 1,419.89.

"There's nothing in particular today that drove prices down," said Blake Carter, research analyst for Tejas Securities Group Inc. in Austin. "It's more the continuation of what's been going on. A lot of stocks, even with the selloff, are still overvalued relative to the economic fundamentals.

"There's going to continue to be a tremendous amount of volatility in the equity market."

On Friday, the stock markets turned sharply negative early in the trading session as the Commerce Department reported stronger-than-expected U.S. economic growth.

The nation's second-quarter gross domestic product increased at an annual rate of 5.2 percent, up from a revised 4.8 percent in the first three months of the year. Before that news, most economists had predicted that the economy's growth rate would slow to between 3.5 and 4 percent.

Heavy business investment in new equipment and inventories propelled the economy, while consumer spending slowed from April to June. Even so, the strong growth fed Wall Street jitters over whether the Federal Reserve might decide that six interest rate increases in 13 months hadn't slowed the economy's breakneck pace.

The Fed's next chance to raise interest rates will come at its policy-making meeting on Aug. 22.

Contributing to this week's decline in stocks was concern about profits, particularly in the technology sector.

Tech stocks had come roaring back from April's plunge after many companies' second-quarter financial reports exceeded Wall Street's expectations. But profit projections for the rest of the year are less bullish, sapping the confidence of investors.

First Call/Thomson Financial raised projections for average earnings growth among S&P 500 companies to 22.1 percent this week. Third-quarter gains will average 17.7 percent, the company said.

"The market has been, and continues to be, priced for perfection," Mr. Carter said. "If companies don't reach projections, you'll see losses even for a quality company."

On Friday, American Power Conversion Corp., which makes equipment to protect computer networks from power surges, lost 45 percent of its value, the most of any stock in the Nasdaq 100 index. The company announced that its earnings would fall short of expectations. JDS Uniphase Inc. fell $8.21 after Royal Philips Electronics announced that it would sell 5 million shares of the fiber-optics provider that it now owns.

It's been like that all week. Amazon.com Inc., a bellwether stock for the Internet sector, reported Wednesday that its loss doubled to $317.2 million in the past year. WorldCom Inc., a major telecommunications firm, posted a 52 percent increase in profits Wednesday – but warned that revenue would grow at the low end of forecasts for the rest of the year.

Among Texas-based technology companies, Crossroads Systems Inc., Data Return Corp., Efficient Networks Inc., i2 Technologies Inc., RadioShack Corp. and Zixit Corp. were all down.

Dallas-based Texas Instruments Inc. came back from Thursday's $7 decline, which came after Nokia, a key TI customer, reported a slowdown in orders.

Semiconductor stocks were mixed Friday despite several analysts' views that the industry remains strong and should continue to perform well over the next several years. TI posted modest gains, while Dallas Semiconductor Corp. was down slightly.

"There was a little bit of a panic," said Shekhar Wadekar, an analyst for Dain Rauscher Wessels. "When you are as important and as key a supplier to Nokia as TI is, a lot of what happened at Nokia was already factored in by TI. So, I think there was a little bit of a hit-the-panic-button-before-we-ask-any-questions mentality that went on there."

On the New York Stock Exchange on Friday, declining issues outnumbered advancers by a 2-1 ratio and by an even wider margin on the Nasdaq. NYSE composite volume totaled 1.19 billion shares, on a par with Tuesday's pace.

Staff writer Victor Godinez and the Associated Press contributed to this report.