Features

Dow recovers after hitting bear market area

The Associated Press
Friday March 23, 2001

NEW YORK — Despondent investors intensified their selloff of blue chip stocks Thursday, accelerating the decline in the Dow Jones industrial average and narrowly avoiding bear market territory. 

A last-hour rally allowed the Dow to recover somewhat, but the index still closed with a loss of nearly 100 points. 

Investors are in “deep despair,” said Hugh Johnson, chief investment officer for First Albany Corp. “There is a sense of giving up. They are extraordinarily depressed and demoralized.” 

Despite the late recovery, the market’s litany of grim numbers “points out how much damage has been done, and how we have gone from irrational exuberance to irrational depression,” said Alfred E. Goldman, director of market analysis for A.G. Edwards & Sons in St. Louis. 

According to traditional measures, a bear market occurs when there is a drop of 20 percent over a sustained period. While the tech sector landed in bear market turf last year, Wall Street has been debating whether the broader market has also become bearish, or has just dipped into bear territory. The S&P 500 officially entered a bear market on March 12. 

The Dow, which until last week was able to resist the heavy selling that decimated the Nasdaq, has fallen to bear levels because investors believe the economy is getting much weaker, severely hampering even the most stalwart companies. 

“This is about a market that is forecasting a recession,” said Gary Kaltbaum, market technician for First Union Securities. “I know a lot of people are saying we are not in a recession, but remember, 12 months ago people were saying technology was great and wasn’t going anywhere but up.” 

The Dow was able to curb its losses as the Nasdaq advanced on a rebound in deeply discounted tech stocks. Still, Kaltbaum said, it’s doubtful the Dow will be able to sustain a recovery for quite some time. 

“You had to bounce from somewhere,” he said.  

“The Dow is in bad shape no matter what.” 

The Dow began its plunge last week when the market’s fears of a recession widened to include the possibility of a halt in growth globally, especially given news that Japan is in a state of deflation and that the country’s banking system is burdened by debt. 

Investors sold blue chips on a deepening conviction that the economy and corporate earnings won’t improve any time soon, particularly if demand for U.S. goods and services slumps abroad as well. 

The market also remains irritated by the interest rate cut the Federal Reserve made Tuesday. Investors, who wanted the Fed to reduce rates by 0.75 percentage point, don’t think the 0.5 point reduction will be enough to boost earnings and the economy. 

Among blue chips hurting Thursday was Procter & Gamble, down 45 cents at $62.75, after confirming earlier reports that it is slashing 9,600 jobs as it tries to restore long-term growth. 

General Motors skidded $1.22 to $52.30 after announcing plans Wednesday to briefly idle more North American assembly plants in the next three months as it winnows inventories.  

GM idled two assembly plants, affecting 5,600 workers, earlier this week. 

The impact of slowing demand from consumers abroad has hurt other Dow stocks. McDonald’s, which warned earlier this month that Europe’s fears about the spreading of mad cow disease will pinch profits more than expected, fell 54 cents to $25.11. 

A new report showing the economy has further slowed added to investors’ sour mood. 

Economic activity fell 0.2 percent in February, according to the Conference Board. The New York-based private research group said its Index of Leading Economic Indicators fell to 108.8 last month after increasing a revised 0.5 percent in January. 

The group provided little encouragement that the economy would rebound any time soon, but it did say slow growth would continue in the coming months. 

The Labor Department reported Thursday that initial applications for jobless benefits edged down by 1,000 to a seasonally adjusted 379,000 for the week ending March 17. Despite the drop, the figures were interpreted as showing a continuing drop in demand for workers. 

 

 

Declining issues outnumbered advancers nearly 3 to 1 on the New York Stock Exchange, where consolidated volume was very heavy at 2.04 billion, compared with 1.56 billion on Wednesday and close to the record 2.2 billion shares traded on Jan. 3. 

The Russell 2000 index, which tracks the performance of smaller companies stocks, was down 2.94 at 432.80. 

Overseas, Japan’s Nikkei stock average closed down 1.9 percent. 

Stocks dove even further in Europe. Germany’s DAX index fell 4.2 percent, Britain’s FTSE 100 declined 4.1 percent and France’s CAC-40 closed down 4.0 percent. 

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On the Net: 

New York Stock Exchange: http://www.nyse.com 

Nasdaq Stock Market: http://www.nasdaq.com