Nasdaq Ends at Lowest Level Since March 1999

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Wednesday's Market: Nasdaq Ends at Lowest Level Since March 1999; Downgrades Batter Dow

By David A. Gaffen

Staff Reporter

12/20/00 5:01 PM ET

The stock market suffered through a bloody session, with both the Dow Jones Industrial Average and the Nasdaq Composite Index ending with triple-digit losses. A series of morning downgrades of large technology companies, tax-loss related selling and continued disappointment that the Federal Reserve didn't reduce interest rates yesterday was responsible for the day's losses.

Selling accelerated in the afternoon, especially on the tech-heavy Nasdaq, which closed at its lowest level since March 23, 1999. A total of 2.8 billion shares traded, making it the second-heaviest day of trading in history. The list of stocks hitting new 52-week lows read like a "Who's Who of the Nasdaq," including Cisco (CSCO:Nasdaq - news), Sun Microsystems (SUNW:Nasdaq - news) and Microsoft (MSFT:Nasdaq - news).

A staggering 933 stocks hit new lows on the day as the Nasdaq lost 7.1% of its value, seventh-largest percentage loss in history. The S&P 500, meanwhile, lost 3% and the Dow dropped 2.5%.

Despite the massive declines, investors remain skeptical that the market has reached a bottom. Yet, tax-loss selling and overall pessimism may result in more selling for the next few days.

"The market's groping for a bottom, but clearly we haven't found one yet," said Bryan Piskorowski, market analyst at Prudential Securities. "By and large, people wanted to say we weren't looking for a hike, but in the back of everyone's mind there was hope. Now that that's been kyboshed, and houses are throwing in the towel. Selling is begetting selling."

Some believe the market was hoping against hope. Hoping that the Fed, which elected to change its directive to lean toward the possibility of interest-rate cuts, as expected, should have cut the fed funds rate from its current 6.50%.

Add to that a series of analyst downgrades, including a Merrill Lynch downgrade of Cisco, as well as earnings warnings from a variety of companies, including Cisco competitor Foundry Networks (FDRY:Nasdaq - news), which cautioned of a shortfall earlier today. Also warning were Jabil Circuit (JBL:NYSE - news) and Vishay Intertechnology (VSH:NYSE - news), a semiconductor and component distributor.

Merrill Lynch analysts also gave the market a thorough pantsing this morning when it downgraded shares of Hewlett-Packard (HWP:NYSE - news) and IBM (IBM:NYSE - news). Analyst Tom Kraemer said a survey of technology buyers shows a slowing in purchases of mainframes, Unix servers, software and PCs -- bad news for the two Dow components.

Hewlett-Packard fell 2.8% to $30.44 today; IBM ended the day down 4.6% to $86. The major technology indices were destroyed today, as analysts anticipate a continued slowing in technology spending and investment after several years of robust investment. The American Stock Exchange Networking Index lost 10%, while the Philadelphia Stock Exchange Computer Box Maker Index dropped 5.3%. The Philadelphia Stock Exchange Semiconductor Index lost 6.5% today.

International Paper (IP:NYSE - news) was also rapped after issuing an earnings warning, losing 4.8%. The Philadelphia Stock Exchange Forest & Paper Products Index lost 2.3%.

Big Bottom?

Of course, the subject at the forefront of everyone's mind is whether the market has indeed reached a breaking point; whether the losses will stop and investors will start buying stocks again. Some sources today felt it was too early to talk about capitulation, which is defined by hitting bottom and bouncing off. The market closed the day right at the day's lows, so there's not much confidence that a bottom has been reached.

Richard Dickson, technical analyst at Scott & Stringfellow, pointed out that despite the new lows in names like Cisco and Sun Microsystems, a number of prominent blue-chip technology companies are still trading at levels higher than their March lows. He cited Vitesse (VTSS:Nasdaq - news), Juniper Networks (JNPR:Nasdaq - news), Siebel Systems (SEBL:Nasdaq - news) and Rambus (RMBS:Nasdaq - news) as examples of companies still trading at levels better than the lows reached in the spring.

"There's a lot of glamour names," he said. "Once you've convinced people these bulletproof stocks aren't bulletproof you can say, we've cleaned out the excesses and say, we've shot 'em. Until we get that washout, we're not there on the Nasdaq."

Right now, though, the market has very little to hang its hat on, nothing overly positive from economic news or consumer data to offset the spate of earnings warnings and disappointments. Ultimately, there's a believe that lower interest rates will alleviate some of the pressure on the stock market, but it won't make existing problems go away -- that is, bank loans that can't be paid off, the shuttering of dot-coms and other firms that couldn't make any money and a slowing in technology spending.

"When you go into a recession, there's bad loans," said Allan Meyers, portfolio manager of the Kent Growth & Income Fund in Grand Rapids, Mich. "A poorly managed bank can offset the decline in interest rates. Banks are going to be a case-by-case basis on how they perform."

Today, those stocks were mixed. The Amex Broker/Dealer Index lost 3% today and the Philadelphia Stock Exchange/KBW Bank Index lost 1.6%. However, a number of regional banks and other financial stocks performed reasonably well; Wells Fargo (WFC:NYSE - news) ended the day up 0.2%; Summit Bancorp (SUB:NYSE - news) rose 1.7%, and FleetBoston Financial (FBF:NYSE - news) gained 1.9%.

Market Internals

Breadth was vomit-inducing on heavy, heavy volume.

New York Stock Exchange: 1,010 advancers, 1,933 decliners, 1.4 billion shares. 167 new 52-week highs, 196 new lows.

Nasdaq Stock Market: 829 advancers, 3,291 decliners, 2.79 billion shares. 55 new highs, 933 new lows.

-- (in@economic.news), December 20, 2000


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