While Monday's losses seemed severe, analysts weren't especially shocked by the sharp sell-off. Evidence of a significant economic slowdown in the U.S. and abroad has been mounting for weeks. Japan's Nikkei index hit a 16-year low Monday, and European markets tumbled lower. Technology stocks have already been brutally punished as a result of an unending parade of profit warnings. "This is nothing new. The Nasdaq has been under this kind of pressure for some days now. It's starting to accelerate near to a bottom," says Peter Coolidge, head trader at Brean Murray & Co. "It can't do this for too many more days."
Most observers remain hopeful that the stock market is nearing that elusive bottom. John Hughes, market analyst with Shield & Co., calls the downturn "constructive." "What's been missing is that final give-up," he said, noting the stock market needs to hit a bottom in order to mount any lasting recovery. "As long as it doesn't drag out too long, we won't have much impact in the longer term. If we spend the rest of the year with this slow, grinding decline, we'll do a lot more damage."
The major indexes started the day in negative territory following the latest bad news from top networking equipment maker Cisco Systems (CSCO
. The company, whose stock is one of the most widely held on the Nasdaq, said after the market close Friday that signs of the U.S. economic downturn are beginning to spread into other regions around the globe. The tech giant also said it would cut 11% of its workforce, or up to 5,000 jobs.
The sharp point declines today would suggest panic among investors. But that wasn't the case, says Jay Suskind, director of equity trading at Ryan Beck & Co. "The market looked ugly, but there was never that cavalcade of 'Hey get me out, I just want out.'" Volume on the Nasdaq of 2.1 billion shares and NYSE activity of 1.2 billion shares didn't come close to the exchanges' most active days. The moderate volume suggests that investors took the attitude of, "'I've held on this long, I'll just hang in there,'" Suskind says.
Monday's battering is likely to extend into Tuesday, Suskind says, as overseas markets, which also suffered with the U.S. today, could start the session weaker. But he notes that U.S. markets could rally on a technical bounce between
triple witching this Friday, a quarterly event associated with large price moves in the market, and the Federal Reserve's next policy meeting on Mar. 20. Analysts are expecting the Fed to lower short-term interest rates to help spark the lagging economy.
"Until we have some level of positive reinforcement that the economy is bottoming and maybe some tech companies can make some positive announcements, we will see some bear market rallies," Suskind says.
Others are less optimistic. "Why should there be a bottom?" asks Kenneth Sheinberg, head of listed trading at Cowen & Co. "We're in a very different market now that we haven't seen in years and years. People have to get used to the fact that the market is not going to go up and up."
The Nasdaq ended down around 60% from its all-time high of 5,048.62 this time last year. Among sector indexes, only emiconductors managed to inch ahead with slight gains, while the worst-performing group, biotechnology, plummeted nearly 10%. The Nasdaq, which is now in its worst bear market ever, ended down 129.11 points, or 6.29%, at 1,923.67.
Heavy losses on the Dow came as all of the index's components ended in the red. Major appliances maker General Electric (GE
) was the biggest loser as investors speculated that the company would issue a profit warning. GE reportedly denied the rumors.
Aerospace company Honeywell International (HON
), software behemoth Microsoft (MSFT
), and financial-services giant JP Morgan Chase (JPM
) were among the biggest losers on the 30-stock index. The Dow ended down 436.37 points, or 4.10%, at 10,208.25.
The S&P 500, a broad stocks gauge, finished down 53.38, or 4.33%, at 1,180.04. The "500" is now in a bear market, down more than 20% from its high reached last year.
U.S. Treasuries finished higher on severe weakness in the stock market. No economic data were released today.
Last Friday investors digested a surprisingly strong jobs report for February. The government said the economy created 135,000 new jobs outside the farm sector, compared to the 62,000 Wall Street had expected, and a revised 224,000 in January. The unemployment rate held at 4.2%, despite recent suggestions from Fed officials that it would eventually rise. Before the data, the market had expected the Fed to cut rates by a half-point at its meeting next week.
Stocks in the News
American General (AGC
) agreed to be acquired by Prudential PLC (PUK
) in a $26.5 billion deal. Prudential will give 3.6622 of its shares for each AGC share, implying a $49.52 value, subject to a collar. Prudential would own 50.5% of the new company, while AGC would own 49.5%.
Dean Foods (DF
) was downgraded by Deutsche Banc Alex. Brown to underperform from market perform after the company forecasted lower-than-expected third-quarter earnings per share of $0.45 to $0.47 and fiscal-year EPS of $2.50 to $2.55. The maker of specialty foods said it was working with Goldman to explore alternatives.
Swedish telecom equipment maker Ericsson warned that it expected a pretax loss of $407 million to $509 million in the first quarter instead of a result close to breakeven.
European markets closed lower after a sharp fall in the Japanese stock market overnight and weakness in U.S. technology issues. The London Financial Times-Stock Exchange 100 index ended off 90.80 points, or 1.53%, at 5,826.50. In Germany, the DAX Index finished down 157.86 points, or 2.54%, at 6,046.56. Meanwhile, France's CAC 40 Index finished down 126.49 points, or 2.36%, at 5,242.40.
In Asia, the markets ended sharply lower. Japan's Nikkei 225 Index closed down 456.53 points, or 3.62%, at 12,171.37, its lowest level in 16 years. Hong Kong's Hang Seng index finished down 417.63 points, or 2.94%, at 13,776.72. By Amy Tsao in New York