Dow drops more than 200 on worries about turnaround timing

By Lisa Shinghania The Associated Press
Thursday January 17, 2002

NEW YORK — A murky forecast from Intel sent stocks sharply lower Wednesday on worries that a recovery would take longer than expected and that the market had risen too high, too fast. 

The Dow Jones industrials tumbled more than 200 points to their weakest finish in 1 1/2 months with selling that spread across the market and intensified late in the session. Analysts said investors were collecting profits rather than risk a loss if an economic turnaround is delayed. 

“It’s the combination of an uncertain outlook and the relatively high stock valuations out there right now,” said Matt Brown, head of equity management at Wilmington Trust. “If the market were dirt cheap, investors might be more comfortable taking risks.” 

The Dow closed down 211.88, or 2.1 percent, at 9,712.27, its lowest close since Nov. 28, when the index was at 9,711.86. The loss was the biggest point drop since Oct. 29, when the index fell 275. 

The decline was more severe for the technology-focused Nasdaq composite index, which slid 56.47, or 2.8 percent, to 1,944.44. The Standard & Poor’s 500 index lost 18.62, or 1.6 percent, to 1,127.57. 

The selloff extended what has been a frustrating string of sessions for Wall Street this month as investors try to gauge the direction of the economy and the market. Stocks advanced rapidly during the last quarter of 2001 on a rebound from the post-terror attacks selloff and on rising expectations that business was improving. 

With the onset of fourth-quarter earnings season, investors have become cautious again, reluctant to extend themselves too much in a market that many analysts say reflects expensive, rather than realistic, short-term expectations. 

Wednesday’s downturn was prompted by Intel, which reported fourth-quarter results better than estimates but which also indicated it’s too early to tell if an economic recovery has started. 

The news upset investors who had sent the sector higher on anticipation that it was about to turn around and would resume the strong growth of the late 1990s. The hope was that Intel would be the first of many tech companies to indicate business was improving. 

“The Street has been hoping it would get something like, ’The worst is behind us,’ from Intel. Instead, the company said it doesn’t see that business is really improving a whole lot,” said Todd Clark, head of listed equity trading at Wells Fargo Securities. “That spooked a lot of people, and that’s why you’re seeing a lot of this selling.” 

Intel, which had advanced considerably in anticipation of a more upbeat forecast, fell 97 cents to $33.71. Other tech stocks also suffered, including Advanced Micro Devices, which reported a smaller quarterly loss than expected after the market closed. The stock rose $1.23 in extended trading, or 6.8 percent, regaining some of its $1.24 loss during the regular session. 

EBay, which beat Wall Street’s fourth-quarter estimates and forecast a profitable 2002, dropped $4.09 to $59.94 in the regular session. 

Among broader issues, J.P. Morgan Chase slid $1.67 to $36.20 after missing fourth-quarter estimates and reporting a fourth-quarter decline of $332 million because of losses attributable to the Enron bankruptcy, Argentina’s debt default and other equity investment losses. 

And Kmart tumbled 89 cents to $1.56 on news it would be removed from the Standard & Poor’s 500 index at the end of the session. The discounter, which many fear is headed for bankruptcy, was being dropped because of its low stock price and financial problems. 

A Federal Reserve report released during the session offered little incentive to buy. The report, known as the Beige Book, indicated that although there are some signs a recovery will begin by mid-year, its “timing and strength are uncertain.” 

Also Wednesday, the Labor Department reported consumer prices edged down 0.2 percent in December. A dramatic drop in energy prices — reflecting weak demand amid a worldwide economic slump — was a key reason. 

Declining issues led advancers more than 3 to 2 on the New York Stock Exchange. Consolidated volume came to 1.81 billion shares, compared with 1.68 billion Tuesday. 

The Russell 2000 index slid 8.58 to 476.42. 

Overseas, Japan’s Nikkei stock average lost 0.3 percent. In Europe, Germany’s DAX index dropped 1.5 percent, Britain’s FT-SE 100 fell 0.7 percent, and France’s CAC-40 slipped 2.1 percent. 


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