Markets & Finance

Wall Street Rings in the New Year with a Big Sell-Off


The New Year is supposed to be a time for turning over a new leaf. But Wall Street paid no heed to the old saying. In the first trading session of 2001, investors were again overcome by old fears of shrinking corporate profit growth. Why? A report released early in the session revealed that a key gauge of activity in the nation's manufacturing sector dropped to its lowest level in nearly a decade, reinforcing concerns that the U.S. economy is slowing too dramatically.

The troubling news, however, had a silver lining. The deterioration in manufacturing activity bolstered the belief that the Federal Reserve will not delay in lowering interest rates. Most analysts don't expect any major turnaround in the gloomy outlook until the Fed moves to ease monetary policy, which is expected to occur at the Central Bank's Jan. 30-Jan. 31 meeting.

The worst flogging on Tuesday was reserved for the Nasdaq composite index, home to many tech heavyweights, which shed 178.66 points, or 7.23%, to 2291.86, reaching a low not seen since March 1999.

Sparking an exodus out of technology in part was news that investment bank Robertson Stephens lowered its investment rating on Network Appliance (NTAP) and other data storage companies on a weaker than expected information technology outlook. Network Appliance was off 12-3/4 at 51-7/16.

"They're kind of kicking technology when it's down," said Guy Truicko, portfolio manager with Unity Management in Garden City, N.Y. "They are saying things that the people have known, but the market keeps wanting to react to this kind of news."

Among other bruised stocks was Analog Devices (ADI), which lost 4-3/16 to 47 after Morgan Stanley lowered its investment rating on the integrated circuit maker to neutral from outperform.

But the most heavily traded issue on the Nasdaq was data networking giant Cisco Systems (CSCO), which was off 5 to 33-1/4.

Internet shares in general were shown no mercy with the Dow Jones Internet Index down 15.1% on the day.

Blue chip stocks were not spared from the selling either. In the Dow, weakness came from old-line industrial components with diversified conglomerate General Electric (GE) losing 4-3/16 to 43-3/4. The Wall Street Journal reported that certain engines GE makes were the subject of a probe.

Also down in its first day of trading was J.P. Morgan Chase (JPM), the company formed by the merger between financial giants J.P. Morgan and Chase Manhattan. The stock was off 1-7/16 to 44.

The Dow Jones industrial average fell 140.70 points, or 1.30%, to 10,646.15. The 30-stock average was able to stem some of its losses thanks to oil giant Exxon Mobil (XOM), which was up 2-3/16 to 89-1/8 on news that Saudi Arabia was calling on the oil cartel OPEC to reduce output. The Standard & Poor's 500 index, a broad stocks gauge, fell 37.01 points, or 2.80%, at 1,283.27.

Although Wall Street was distressed about the negative tone of the first trading day of the new year, many analysts believe that the Fed will ease interest rates and that investors will focus on low valuations.

"The market will rally significantly in January," David Katz of the Matrix Advisors Value Fund (MAVFX) told Standard & Poor's AdvisorInsight.

This year, "the biggest gains will come from financials, selected technology, and some old economy stocks," said Katz. "The NASDAQ will rally this year, but the Internet bubble is over," according to Katz. "There will not be significant rallies in companies without profits."

Treasury Market

U.S. Treasuries rallied smartly as stocks were gouged.

In economic news, the National Association of Purchasing Managers (NAPM) Index dropped to 43.7 in Dec from 47.7 in November while the prices paid component rose to 61.0 from 56.6. In the manufacturing index, any reading below 50 is a contraction.

The market focused more about the weakness in the overall index and in most of the other components, rather than the rise in prices. This is the lowest the index has been since April 1991.

Stocks in the News

Drug store chain Walgreen (WAG) posted first quarter earnings per share of $0.15 compared with $0.13 on a 16% sales rise.

World Markets

European markets crumbled on the weakness in the U.S. The London Financial Times-Stock Exchange 100 index was off 47.80 points, or 0.77%, at 6,174.70. In Germany, the DAX index, meanwhile, was off 120.07 points, or 1.87%, to 6,313.54 as German Purchasing Managers Index fell to 54.0 in December from 55.4 in November. France's CAC 40 was down 127.52 points, or 2.15%, at 5,798.90 as French PMI fell to 52.8 in December from 54.1 in November.

Japan's stock market was closed. Hong Kong's Hang Seng index, meanwhile, ended off 225.59 points, or 1.49 percent, at 14,869.94. By Eric Wahlgren in New York


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