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Nasdaq hits dubious milestone
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February 21, 2001: 5:26 p.m. ET
Technology stocks return to 1999 levels; Dow also falters on profit worries
By Staff Writer Jake Ulick
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NEW YORK (CNNfn) - Another round of profit worries sent U.S. stocks plunging Wednesday in a sell-off that handed the once gravity-defying Nasdaq composite index its lowest close in nearly two years.
The Nasdaq, whose gains once fueled the bull market of the late 1990s, is now 55 percent below its all-time reached only 11 months ago.
Wednesday's sell-off, which spread to the Dow Jones industrial average, came amid familiar worries about slowing corporate earnings. But a new concern emerged as well: Rising inflation.
The January Consumer Price Index rose twice as fast as Wall Street expected. The development, if it becomes a trend, could make it tougher for the Federal Reserve to keep aggressively lowering interest rates.
 "The question is whether this bottom will hold or not," Vince Farrell, president of Spears, Benzak, Salomon & Farrell, told CNN's Street Sweep. "I suspect it will not."
Still, Farrell, a value investor, thinks the market's worst losses are almost over. He's betting on a partial economic recovery in the second half of next year.
The tech turnaround has been swift. The Nasdaq, after nearly doubling in 1999 and losing a third of its value the next year, is now back where it was in March, 1999.
Blame much of Wednesday's drop on Sun Microsystems. Shares of the computer networking company fell nearly 12 percent after Merrill Lynch cut its earnings forecast for Sun. Meanwhile, another round of technology companies -- including Agilent Technologies and VA Linux -- warned about weakening future results or missed bottom line expectations.
But technology stocks weren't the only losers. Weakness in retail and financial shares, whose profits often fall as the economy slows, sent the Dow Jones industrial average reeling.
Coca-Cola swung lower after Goldman Sachs trimmed its earnings target for the soft-drink maker.
 The Nasdaq lost 49.41 points, or 2.1 percent, to 2,268.94. The Nasdaq's third session of declines marks its lowest close since March 3, 1999, when the index finished at 2,265.20.
The Nasdaq jumped more than 85 percent in 1999 but fell more than 39 percent the following year and is now off another 8 percent this year.
The Dow Jones industrial average lost 204.30, or 1.9 percent, to 10,526.58, hit by Coca-Cola's slide and losses in American Express and Home Depot. The S&P 500 shed 23.67, or 1.8 percent, to 1,255.27.
After falling 10 percent in 2000, the S&P 500, one of the broadest market indexes, is off 5 percent this year.
More stocks fell than rose. Declining issues on the New York Stock Exchange topped advancing ones 2,023 to 1,080 as 1.1 billion shares traded. Nasdaq losers beat winners 2,610 to 1,140 as 1.9 billion shares changed hands.
In other markets, the dollar rose against the yen but edged lower against the euro. Treasury securities mostly fell.
Sifting through the numbers
Sun Microsystems (SUNW: Research, Estimates) fell $2.63 to a 52-week low of $19.63 after Merrill Lynch downgraded the server maker to "neutral" from "accumulate." Merrill also lowered its fiscal 2001 earnings per share estimate to 65 cents from 68 cents.
Other big tech stocks also fell. Dell Computer (DELL: Research, Estimates) $1.38 to $20.63 and JDS Uniphase (JDSU: Research, Estimates) declined $2.63 to $31.69.
 The losses come amid more bad news from Corporate America.
Among the latest tech companies to disappoint investors, Agilent Technologies (A: Research, Estimates), fell $3.80 to $40.20 after warning it will not meet its previous revenue-growth target for the current fiscal year.
Agilent, the Hewlett-Packard spinoff that makes testing and measurement equipment, said fiscal first-quarter profit rose to $237 million, or 51 cents per share, topping forecasts by a penny a share.
VA Linux (LNUX: Research, Estimates) shed $1.59 to $5.66. The distributor of the Linux operating systems posted an operating loss of 28 cents a diluted share in the second quarter, 2 cents wider than expected. Few companies embody the technology sell-off like VA Linux, whose shares traded above $238 in late 1999.
Many of the stocks considered most sensitive to changes in the economy also fell.
Retail stocks, which rallied Tuesday, lost value. Wal-Mart Stores (WMT: Research, Estimates) lost $3.19 to $50.21 while Home Depot (HD: Research, Estimates) declined $3.14 to $40.95.
Financial stocks fell for a second day. J.P. Morgan Chase (JPM: Research, Estimates) gave up $2.60 to $47.35 while American Express (AXP: Research, Estimates) dropped $2.01 to $43.97.
Coca-Cola was the Dow's biggest loser, sliding $3.55 to $54.92, after Goldman Sachs downgraded the soft-drink maker's shares and lowered its 2001 earnings per share estimate to $1.60 from $1.71.
Coca-Cola also entered into a $4 billion venture with Procter & Gamble to jointly sell fruit drinks and snacks. Procter & Gamble (PG: Research, Estimates) rose 85 cents to $76.56.
Nasdaq at crossroads
The last time the Nasdaq fell to a significant low, Jan. 2, the Federal Reserve the next day slashed interest rates to revive the economy. Stocks rallied that day, but have given up all their gains despite a subsequent Fed rate cut later in January. Many investors have pinned their hopes for a revival in corporate profits on another rate cut by Fed policy makers next month
"If the Fed doesn't come through we could be in for another move to the downside," Linda Jay, floor trader at RPM Specialists, told CNNfn's Market Call.
On Wednesday, a rumor spread that the Federal Reserve was holding an emergency meeting to cut interest rates. But the Fed made no such announcement.
Bad news on inflation didn't help. In a development that could make it tougher to cut borrowing costs, prices at the retail level showed big gains last month. The Consumer Price Index rose 0.6 percent in January, double economists' forecasts.
The gains, which follow last week's big surge in prices at the wholesale level, came as the price of natural gas, automobiles and tobacco rose.
"Price pressure makes it more difficult for the Fed to ease," said Mike Moran, economist at Daiwa Securities. "But it does not preclude lower rates."
The rising prices came amid a drop in consumer confidence and a slump in manufacturing. Corporate layoff announcements have jumped.
With Americans spending less money on overseas goods, the U.S. trade deficit fell for a third straight month in December. A report Wednesday from the Commerce Department showed the monthly trade deficit narrowed to $32.99 billion in December from a revised $33.13 billion in November.
Imports, which surged during the first part of last year, continued to fall as consumers reined in their shopping. Still, the deficit for all of 2000 widened to a record of $369.7 billion last year from $265 billion in 1999.
Despite the day's losses bargain hunting lifted some shares. Microsoft (MSFT: Research, Estimates), off 50 percent from its 52-week high of $115, rose 38 cents to $56.25.
Defensive stocks such as drug and tobacco shares also rose. Johnson & Johnson (JNJ: Research, Estimates) gained 88 cents to $96.91 while Merck (MRK: Research, Estimates) advanced 81 cents to $78.71 and Philip Morris (MO: Research, Estimates) climbed 13 cents to $48.06.
A volatile session did nothing to dispel fears about slowing corporate earnings and rising inflation. Stocks opened higher, gave up those gains and fell sharply toward the close.
"This is a trader's market," Sam Ginsburg, a trader at Gruntal & Co., told CNNfn's market coverage. "You're seeing wild swings in specific stocks and specific sectors." 
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