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Markets & Stocks
Dow escapes bear's lair
March 22, 2001: 4:49 p.m. ET

Late rally in tech stocks helps blue chips crawl out of bear territory
By Staff Writer Catherine Tymkiw
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NEW YORK (CNNfn) - A late rally in technology stocks saved the Dow Jones industrial average from its first bear market in more than a decade Thursday but industrial and cyclical issues on the blue chip index were still sharply lower.

"Each day is another adventure," said Alan Ackerman, senior vice president with Fahnestock & Co. "We have complex cross currents working in an environment where we have a nasty and negative tone."

The "old economy" index fell more than 300 points before recovering most of its losses. The Dow, well on its way to a 20 percent decline from its record high last year, was saved by strength in Microsoft and Intel, two of the youngest companies in the century old index.

graphic"The market is going after the stocks that seem more vulnerable right now," said Peter Coolidge, senior trader with Brean Murray & Co. "The Nasdaq stocks have been beaten up so much that there's a little bit of money flowing into that (techs)."

The Dow industrials fell 97.52 to 9,389.48. The index rebounded from a 350-point loss that put it in bear market territory -- defined as a 20 percent drop from a high. The blue chip index is down 19.9 percent from its Jan. 14, 2000 high of 11,722.

While the Nasdaq composite index held up better, the tech-heavy index is still off 63 percent from its March 10, 2000 high of 5,048. The indicator has taken a beating for months on the same fears that are now plaguing the Dow.

The Nasdaq composite index flip-flopped within a narrow range on either side of breakeven, falling briefly fell below 1,800 for the first time since Nov. 1998 before rising 67.47 to close at 1,897.70. The S&P 500 dropped 4.56 to 1,117.58 and is down 27 percent from its March 23, 2000 high of 1,527.

graphic"Sixteen months of downside on the Nasdaq has turned greed into fear," wrote Bryan Piskorowksi, market analyst with Prudential Securities, in a note to clients. "Meanwhile, the names that have traditionally offered shelter from the storm are not working."

The revenue growth concerns that have been wreaking havoc in  the technology sector for months finally spread into "old economy" issues that had previously been seen as safe havens. Those include industrial and cyclical stocks found on the Dow.

"All the non-tech players have been hiding out and making money, but now that's starting to wither away," said Barry Hyman, chief market strategist with Weatherly Securities.

Bears creep on Wall Street

All three major indexes are either firmly in or near bear market territory. The Nasdaq has been down more than 20 percent firmly since early September while the S&P only entered bear territory March 12.

The Federal Reserve's one-half percentage point interest rate cut earlier in the week did little to restore investor confidence in the economy and the markets.

But analysts said one reason the tech-heavy Nasdaq has been vacillating this week is mostly because it has been down for so long that it is now looking modestly attractive.

"There is a serious shift going from the growth companies in the old economy to growth companies in the new economy that have been quite tarnished over the past nine months," said Ned Riley, chief investment strategist with State Street Global Advisors. "The tech recession was the catalyst and we are genuinely seeing a slowdown in old economy sectors."

Everyone has been waiting for the major indexes to reach a bottom and find solid footing to move higher but analysts say the volume levels have not been strong enough to indicate a turnaround is imminent.

"Capitulation is defined by volume and we just haven't seen that," Gail Dudack, NYSE independent market strategist, told CNNfn's Street Sweep. "There is some panic out there but it's not a washout – the public is more paralyzed."

Market breadth was sharply negative. On the Nasdaq decliners beat advancers 2,276 to 1,498 as more than 2.46 billion shares were traded. Losers beat winners on the New York Stock Exchange 2,341 to 777 as more than 1.71 billion shares changed hands.

In other markets, Treasury securities edged higher. The dollar rose against the yen and euro.

Revenue slowdown worries hurt Dow

Analysts said "old economy" companies are starting to use recessionary tactics to head off any anticipation of a deceleration in revenue growth. The psychological impact added to the uncertainty and lack of confidence that had been plaguing tech stocks and is now spreading to other sectors.

"Right now I think you're in the indiscriminate phase of selling," said Riley. "There's more of (a feeling of) anticipation and paranoia about the possibility that some of the Dow stocks could disappoint even further."

Procter & Gamble provided further fuel for selling on the Dow after saying it is initiating job cuts as a cost-cutting measure.

"I also feel very strongly that Procter & Gamble's strategy is not going to be linked only to Procter & Gamble," said Riley. "We will see other Dow-type companies that either have some economic sensitivity or a slowing of revenue growth start to announce restructurings."

graphicProcter & Gamble  (PG: Research, Estimates) fell 45 cents to $62.75 after it said it is stepping up its cost-cutting efforts by slashing 9,600 jobs, or 9 percent of its work force.

Other Dow issues also tumbled. 3M (MMM: Research, Estimates) fell $1.82 to $101.81, Honeywell (HON: Research, Estimates) shed $1.84 to $35.93, and General Electric  (GE: Research, Estimates) slid $1.30 to $37.70.

In other non-tech news, parcel deliverer United Parcel Service  (UPS: Research, Estimates) tumbled $1.81 to $55.89 after it warned that it will fall short of earnings expectations in the soon-to-be-completed first quarter, the second straight period it has been forced to issue such a warning.

Techs climb higher

Technology stocks edged higher, benefiting from the rotational shift away from industrial and consumer cyclical issues.

"The Nasdaq has been beaten up so much that there's room for a technical rebound if not more," said Brean Murray's Coolidge. "It's still very murky as to where valuations should be and how much more room there is on the downside."

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Microsoft (MSFT: Research, Estimates) advanced $3.94 to $54 after Goldman Sachs technology analyst Rick Sherlund again cut his sales and profit forecasts, but said much of the bad news from the slowdown in tech spending may already be reflected in its stock price.

Semiconductor maker Micron Technology (MU: Research, Estimates) surged $3.49 to $45.50 after it said it will report operating profit for the second quarter, ended March 1, rather than the loss analysts expected. But the company delayed its actual report until next week.

Other semis also rose. Applied Materials  (AMAT: Research, Estimates) gained $4.56 to $46.63 and Intel  (INTC: Research, Estimates) rose $3.13 to $28.69.

The chip sector is closely watched as a gauge of sentiment for the broader technology sector, analysts said. The Philadelphia Semiconductor index gained 68.37 points, or 12 percent, to 626.39.

Economy still weak

A gauge designed to forecast future economic activity showed weakness. Leading economic indicators fell 0.2 percent in February, according to the Conference Board, a private research group. Analysts surveyed by Briefing.com expected a decline of 0.2 percent for the indicator, which rarely moves markets.

Still, the index has not declined enough to signal a recession, the group said. But the New York-based group provided little encouragement that the economy will rebound any time soon. "The Leading Economic Index suggests that this period of slower growth will probably continue for the next few months," Conference Board economist Ken Goldstein said in the report. The index fell in each of the last three months of 2000.

In other economic news, the number of people filing new jobless claims dipped slightly in the United States last week, according to the Labor Department, but the figure came in higher than economists had forecast. The Labor Department said new claims for state unemployment benefits fell 1,000 to 379,000 last week from a revised 380,000 the prior week. Economists surveyed by Briefing.com had forecast a reading of 368,000 for last week. graphic





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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.