Steve Quayle News Alerts

October 9, 2002

DJIA 7286.27 -215.22
NASDAQ 1114.11 -15.1
S&P 799.53 -1.05

NEW YORK — Blue chips fell to five-year lows Wednesday, dragging other indexes lower, as worries about the long-term effects of the West Coast port lockout and a fresh batch of bearish analyst calls on major companies like General Electric and General Motors prompted investors to sell.

The blue-chip Dow Jones industrial average sank 215.22 points, or 2.87 percent, to 7,286.27, closing at a low last hit in October 1997. The Nasdaq Composite fell 15.06 points, or 1.33 percent, to 1,114.15. The broader Standard & Poor's 500 Index slid 21.78 points, or 2.73 percent, to 776.77.

The Dow has now lost more than 37 percent from its January 2000 high. The Standard & Poor's 500 index has lost almost 50 percent from its record close in March 2000. Jitters about disappointing earnings have become a severe case of bad nerves, extending a stock slump and bringing about the deepest bear market since 1937-38, according to data from Banc One Investments Advisors.

"Any type of bad news has an amplified effect in this market," said Kevin Logan, senior market economist for Dresdner Kleinwort Wasserstein. "Overall the trend is down because of the doubts about the earnings prospects for many companies. Are they going to be able to grow earnings at a level to appease investors? The answer is no."

Financial stocks were hit hard after Moody's Investors Service cut J.P. Morgan Chase & Co. (JPM)'s long-term debt ratings. This affected about $42 billion of debt and reflected concern over the giant's business outlook.

"Seems to me that the story is the financial services areas, and GE and Ford Motor. Investors seem a bit concerned about credit in the United States," said Val Jensen, president of The Jensen Portfolio.

Another bearish call came from Goldman Sachs investment strategist Abby Joseph Cohen, who cut her 12-to-18-month target on the Dow to 10,800 from 11,300 and her target on the S&P 500 to 1,150 from 1,300. The strategist, known for her bullishness, said stocks are undervalued at current levels, but the equity risk premium is near a three-decade high.

Technology stocks were less affected by the market downdraft and the Nasdaq composite index was down slightly as investors took advantage of recent declines to grab stocks at lower prices.

"You have some people trying to pick a bottom and you're seeing support in 10 to 12 key names," said Tim Anderson, a senior trader at Salomon Smith Barney. Indeed, networking equipment maker Cisco Systems Inc. was up 5 percent after falling for five straight sessions. Still, more than two stocks were down for every one that rose on the Nasdaq.

General Electric (GE) weighed on blue chips and hurt financial stocks, too, after Morgan Stanley cut the stock's price target and said the conglomerate "could be walking into the most difficult operating environment that GE has experienced in at least a couple of decades." Morgan Stanley also cited concerns over losses in GE Capital's portfolio.

GE's stock slumped to its lowest level in five years, dropping $1.31, or 5.6 percent, to $22.04, and was the second-most active issue on the New York Stock Exchange.

Automakers tumbled again after Morgan Stanley cut its earnings outlook on Ford (F), General Motors (GM) and DaimlerChrysler (DCX), citing lower production forecasts, a day after Credit Suisse First Boston downgraded the sector.

Ford, the most active stock on the NYSE, dropped 76 cents to $6.99. GM fell $2.20, or 6.55 percent, to $31.40. The U.S.-traded shares of Germany's DaimlerChrysler fell $2.01, or 6.2 percent, to $30.23.

Some said worries about the long-term costs of the West Coast lockout also hurt stocks. President Bush stepped in Tuesday to stop a management lockout that has cost the U.S. economy billions since it began Sept. 29. Still, dock operators cautioned that it may take weeks to clear backed-up cargo, just at the start of the crucial U.S. holiday shopping season.

"President Bush's intervention ... brought the market out of the hole yesterday for a short period of time. This is just a short-term solution to a bigger problem. We are still losing business, which will cut into corporate profits," said Burton Schlichter, senior market analyst at Lind-Waldock & Co., a division of Refco LLC.

Food and household goods maker Sara Lee Corp (SLE) bucked the downward trend however, rising $1.43, or 7.2 percent, to $21.33 after the company raised its first-quarter earnings outlook, citing lower costs, improved sales of higher-margin items and more favorable currency rates.

Technology shares also bucked the downward trend. Cisco (CSCO), the most active Nasdaq stock, rose 53 cents to $9.13, while chipmaker Intel Corp. (INTC) advanced 31 cents to $13.53.

"I didn't see any news stories to make you feel anything fundamental has changed yet, but maybe people feel that valuations have gotten low enough," said Anderson.

Support -- where buyers are expected to swoop in -- is at 1,080 for the Nasdaq, 7,330 for the Dow and 775 for the S&P. Resistance -- the point where sellers are likely to emerge -- is at 1,160 for the Nasdaq, 7,700 for the Dow and 825 for the S&P, according to research firm Schaeffer's Investment Research. The levels are key elements of technical analysis, which studies prices, volume and charts.

Trading activity was moderate, with 853 million shares traded on Nasdaq and 870 million changing hands on the New York Stock Exchange. Market breadth was strongly negative, with more than two stocks falling for every one that rose on the Nasdaq and more than five stocks slumping for every one that gained on the NYSE.

The Russell 2000 index, a barometer of smaller company stocks, fell 8.21, or 2.4 percent, to 330.56.

Overseas, Japan's Nikkei stock average finished down 2 percent. In Europe, France's CAC-40 fell 1.4 percent, Britain's FTSE 100 rose 0.3 percent, and Germany's DAX index was down 0.9 percent.

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