Nasdaq dodges bullet

February 23, 2001: 5:11 p.m. ET

A late rally saves the hard-hit Nasdaq from a 26-month low; Dow falls
By Staff Writer Jake Ulick

NEW YORK (CNNfn) - Wall Street limped to another losing week Friday as a torrent of companies warned about slowing profit growth amid a fast-faltering economy.

A bout of last-minute buying saved the Nasdaq composite index from its lowest close since 1998 – barely.

The Nasdaq, down nearly 4 percent Friday afternoon, rose during the final moments of trading, snapping a four-session losing streak, as investors nibbled on tech shares cheapened by a year-long sell-off.

But the slight gains can't mask the great damage: The Nasdaq is down 55 percent from its peak early last year.

"Easy come easy go on the Nasdaq," said Jeremy Siegel, a professor of finance at the Wharton School.

The Dow Jones industrial average closed lower Friday while the S&P 500 fell within sight of what Wall Street considers bear market territory.

Blame Friday's losses on Sun Microsystems and Motorola, the latest companies to lower quarterly profit or sales forecasts.

Sun Micro, the big server maker, said profit this quarter could come in at less than half of what Wall Street anticipated. Motorola, the mobile phone maker, said it may lose money this quarter, instead of notching the profit analysts expected.

Wharton's Siegel sees the months-long sell-off as a rational response to the fast-weakening corporate profits. And he says the worst may not be over.

"I don't think (tech stocks) are cheap," Siegel said. "But they are closer to true value."

Sun's problems spread to IBM while Motorola's disappointment hit Nokia.

After falling more than 88 points, the Nasdaq ended up 17.55 points to 2,262.51. The gain, the first in five sessions, came one day after the Nasdaq fell to its lowest levels in more than two years.

The Dow Jones industrial average tumbled 86.94 to 10,441.90 while the S&P 500 slipped 6.96 to 1,245.86.

The Nasdaq fell 6.8 percent on the week while the Dow shed 3.3 percent during the period. The S&P 500 declined by 4.3 percent this week.

From its April peak, the S&P, which accounts for about 75 percent of the market's value, is down 18.5 percent – just short of the 20 percent decline Wall Street deems a bear market.

But many analysts continue to see opportunities in hard-hit stocks.

"Technology stocks are extremely oversold," Ken Tower, technical analyst at UST Securities.

David Katz, stock analyst with Matrix Asset Advisors, agreed.

"We think uncertainty creates opportunities and we would be buying into this weakness," Katz told CNNfn's Market Call.

More stocks fell than rose Friday. Declining issues on the New York Stock Exchange topped advancing ones 1,739 to 1,319 as 1.2 billion shares traded. Nasdaq losers beat winners 2,070 to 1,693 as 2.1 billion shares changed hands.

In other markets, the dollar fell against the yen and euro. Treasury securities rose.

Sun set
Few stocks better illustrate Friday's late tech recovery than Sun Microsystems.

After falling nearly 7 percent, Sun Microsystems (SUNW: Research, Estimates) finished unchanged at $20.81. The server company warned late Thursday that it expects first-quarter earnings to come in between 7 cents and 9 cents per share. That's as much as 53 percent below the 15 cents per share Wall Street expected.

The breakeven close for Sun come after a nearly 12 percent slide on Wednesday, when Merrill Lynch slashed its earnings targets for Sun.

IBM (IBM: Research, Estimates), Sun's major competitor in the server market, wasn't as fortunate. Its stock lost $4.90 to $104 after Salomon Smith Barney cut its 2001 earnings per share forecasts on IBM to $5 from $5.15.

In another surprise, Motorola (MOT: Research, Estimates) warned that it could post a loss in the first quarter, compared with its previous forecast just a month ago of a 12-cent-a-share profit. Motorola shed $1.04 to $16.25.

Other mobile phone makers also tumbled. Nokia (NOK: Research, Estimates) lost $1.91 to $21.34. But Ericsson (ERICY: Research, Estimates) staged a late recovery, rising 13 cents to $8.25.

Sun and Motorola join a long list of tech companies -- including EMC, Nortel Networks and Dell Computer -- that have disappointed investors.

The economy's slowdown is clearly affecting technology companies as businesses invest less money on servers and computer networks. Consumers are also limiting their spending.

Many analysts don't see the market's losses ending until the Federal Reserve, which cut interest rates twice in January, lowers borrowing costs again. But the next Fed meeting doesn't come until later next month.

Still, some aren't ruling out an emergency rate cut like the one the central bank made Jan. 3.

"The Fed could do an interim move pretty quickly," Tony Dwyer of Kirlin Holdings told CNNfn's market coverage.

Among other tech losers, Qualcomm (QCOM: Research, Estimates) tumbled $5.13 to $61.81. CEO Irwin Jacobs told the Financial Times that the company's new "third-generation" wireless technology won't be available in Europe until late 2004 or early 2005, two years later than previously promised.

Qualcomm stock closed above $146 exactly a year ago.

Investors seeking cover mined for gold stocks, often a place for safety in market turmoil. Homestake Mining (HM: Research, Estimates) rose 44 cents to $5.41, Anglogold (AU: Research, Estimates) jumped $1.04 to $15.90 and Meridian Gold (MDG: Research, Estimates) advanced 50 cents to $6.53.

"They only thing I see up are bonds," Mike Murphy, head of equity trading at First Union Securities, told CNNfn's market coverage.

Still, Murphy sees good signs in investors' high level of fear, which often signals a bottom. He's also encouraged by the heavy volume of the day's selling, an indication that a trough is near.

The economy's deterioration has been rapid. Corporate profits during the latest quarter posted their worst performance since the third quarter of 1998, when the Asian financial crises was spooking Wall Street.

Consumer confidence has tumbled, the manufacturing sector has shrunk and the job market has weakened. Few see any decisive turnaround in the stock market until the economy, which showed very little growth in the final three months of 2000, revives.

"We don't know when (that revival will be) and that makes it very worrisome," Paul Meeks, who manages the Merrill Lynch Global Technology Fund, told CNNfn's Talking Stocks.

On the year, all three major indexes are lower, with the Nasdaq off 8.4 percent, the Dow down 3.2 percent and the S&P lower by 5.6 percent.

Still, the late buying Friday produced a few winners among the downtrodden. Cisco Systems, off 67 percent from its 52-week high, rose 38 cents to $28.61. JDS Uniphase, off 78 percent from its 52-week high, gained $1.81 to $32.38.