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Dow drops nearly 2.5 percent
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June 16, 2000: 5:01 p.m. ET
Investors dump financials to pressure blue-chips lower; Nasdaq steadies
By Staff Writer Catherine Tymkiw
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NEW YORK (CNNfn) - Blue chip stocks tumbled nearly 2.5 percent Friday, weighed down by sharp declines in financial stocks and an earnings warning from troubled copier Xerox.
The Dow Jones industrial average tumbled 265.52 points, or 2.48 percent, to 10,449.30 - the lowest close in a month. Of the 30 industrials that make up the blue-chip index, only Alcoa, Exxon-Mobil, International Paper and Microsoft ended the day in the plus column.
The Nasdaq composite fared much better than the Dow with the technology-stacked index gaining 14.82 points, or 0.39 percent, to 3,860.56.
Market watchers attributed the Dow's decline to continued fears that rising interest rates will crimp corporate earnings, particularly in the financial services sector. The Dow's three financial heavyweights -- J.P. Morgan & Co. Inc., American Express Co. and Citigroup Inc. accounted for 82 points of the Dow's decline.
Also pressuring stocks was the "triple witching" expiration of options, which whipsawed stocks in the final hour of trading. Triple witching occurs when the futures market, cash market and options all expire on the same day. Analysts said this could lead to large buy and sell orders, as well as unwinding positions to shift cash allocations.
"It's certainly related to the financial sector going down. There is increasing concern that there will be more earnings misses or pre-announcements coming out," said Barry Hyman, chief market strategist at Ehrenkrantz King Nussbaum. "A lot of this is (also) options-related."
The Fed still looms
"The cacophony on Wall Street this week reflected concerns that the Federal Reserve may raise interest rates further and that corporate profit performance could start to dissipate," wrote Lynn Reaser, chief economist and senior market strategist with Bank of America Asset Management Group, in a note to clients.
 For the week, the Dow fell 1.6 percent to 10,449.30, bringing its decline for the year to 9.1 percent.
Meanwhile, the Nasdaq was virtually unchanged, slipping a mere 0.36 percent, its smallest decline for the year, to 3,860.49. The Nasdaq is now down 5.1 percent for the year. The broader S&P 500 finished the week at 1,464.46.
 Market breadth was negative, but volumes were stronger than they have been in recent weeks.
Declining issues on the New York Stock Exchange beat advancing ones 1,586 to 1,307, as more than 1.2 billion shares changed hands. Losers topped winners on the Nasdaq 2,108 to 1,785, on volume of more than 1.4 billion shares.
In currency markets, the dollar advanced modestly against the euro and the yen. Treasury securities rose.
Financial stocks take a beating
The economic slowdown and potential end to interest rate hikes by the Federal Reserve should signal interest in financials, said analysts. But analyst comments and profit warnings worried investors that the sector may not be as strong as they thought.
In particular, analysts downgraded regional banks Union Bank of California and North Carolina-based Wachovia Corp. in the wake of those companies' second-quarter profit warnings.
Union Bank of California (UB: Research, Estimates) tumbled 8-3/4 to 19-15/16 after three firms lowered their opinions. And Wachovia (WB: Research, Estimates) lost 5/8 to 56-7/16, extending Thursday's more than 13-point plunge, as two more analysts downgraded the North Carolina-based bank.
Bob McCooey, NYSE floor trader for Griswold Co., told CNNfn's Market Call that the selling of financials reflects fears that more bad profit news may come. (414K WAV) (414K AIFF).
 Among Dow financial services components, J.P. Morgan (JPM: Research, Estimates) led the selling as it fell 8-1/2 to 118. American Express (AXP: Research, Estimates) shed 3-27/32 to 51-21/32 and Citigroup (C: Research, Estimates) lost 2-1/8 to 62-3/4.
In the technology sector, Xerox (XRX: Research, Estimates) fell 4-3/4 to 20-9/16 after warning it will post a disappointing quarterly profit for the third time in the past fiscal year.
And Oracle (ORCL: Research, Estimates) fell 5/8 to 81-7/8. The tech leader is due to report earnings next Tuesday.
Red Hat (RHAT: Research, Estimates) rose 1-5/8 to 25 after posting a loss of 2 cents per share in its fiscal first quarter, excluding special items, as its revenue nearly doubled. Analysts forecast that it would lose 4 cents a share in the period.
 Among techs attracting buyers was Rambus (RMBS: Research, Estimates), which soared 25-7/8 to 82-9/16 after Morgan Stanley upgraded the firm to "strong buy" from "outperform." Rambus signed a new patent license agreement with Japan's Toshiba on Thursday.
Qualcomm (QCOM: Research, Estimates) gained 4-5/16 to 65-3/4, after losing more than $9 Thursday on the Chase H&Q downgrade. Cisco Systems (CSCO: Research, Estimates) rose 1-5/16 to 67-13/16 after its chairman said he expected strong growth for its business in China. Intel (INTC: Research, Estimates) fell 2-3/16 to 126-1/16.
Economy slowing down
"The selling in financials is an anticipation of lower earnings due to a slower economy," said Peter Cardillo, research director at Westfalia Investments. "From the point of view of interest rates not going up, it's positive."
The day's economic data showed a slowdown in housing starts, which affects banks because loans for new homes will also slow.
Housing starts across the United States fell 3.9 percent last month to a 1.59 million unit annual rate, below the 1.62 million units economists polled by Briefing.com had anticipated, and also below April's revised 1.6 percent gain. That was the lowest monthly number since June 1999.
The report was the latest in a recent series indicating signs of a slowdown in the U.S. economy. Some investors interpreted those signs as indicative that the Federal Reserve may not need to raise interest rates again when policy makers meet later this month.
However, others said the Fed may still opt to raise interest rates by a quarter point to make sure the latest economic slowdown isn't just a fluke.
"If you listen to the pronouncements of about 6 or 7 Fed presidents and governors over the past week they are all saying the slowdown is real, but don't get too excited because inflationary pressures are still there," Wayne Ayers, chief economist for Fleet Boston told CNNfn. " There is the implication that these numbers may be a little fluky." 
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