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Dow sheds 10,000 mantle
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December 10, 2001: 4:44 p.m. ET
Investors, weary of cheaper borrowing costs, seek earnings rebound.
By Staff Writer Jake Ulick
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NEW YORK (CNN/Money) - A U.S. stock market selloff pushed the Dow Jones industrial average back below 10,000 Monday amid worries another Federal Reserve interest rate cut won't lift sagging corporate profits anytime soon.
Investors fled economically sensitive financial, retail and manufacturing stocks, handing the Dow a third straight loss. The Nasdaq composite index also fell below a round number -- 2,000 -- a level first reached three years ago.
For the Dow, the push and pull between four and five digits highlights the market's rise and fall. After first closing above 10,000 in early 1999, the blue chip index surged above 11,700 last year before tumbling as low as 8,235 when markets re-opened after the September terrorist attacks. The past 11 weeks witnessed a powerful rally.
Monday's declines came a day before Fed policy makers are expected to lower borrowing costs once again. But cheaper money, some investors fear, may prove unable to sustain the market's autumn rally unless companies start delivering fatter profits.
"I think what we really need to happen is continued signs of stabilization followed by increasing earnings," said Mike Cohen, co-fund manager of the Alpha Analytics Digital Future Fund. "Increasing earnings are really what we need."
JDS Uniphase (JDSU: down $0.58 to $9.95, Research, Estimates) did not fulfill that need, saying sales will continue to fall through early next year. Shares of Compaq Computer (CPQ: down $1.62 to $9.70, Research, Estimates) tumbled after a buyout offer from Hewlett-Packard (HWP: down $0.52 to $23.00, Research, Estimates) suffered a setback.
But even with the losses, stocks are still near the best levels since August. Some predict a return to gains later this month.
"It's a healthy pullback," Nick Angilletta, trader at Salomon Smith Barney, told CNNfn's Halftime Report.
The Dow industrials fell 128.01 points, or 1.3 percent, to 9,921.45, nearly a week after closing above 10,000 for the first time since early September. The Nasdaq slipped 29.14, or 1.4 percent, to 1,992.12 while the Standard & Poor's 500 index gave back 18.38, or 1.6 percent, to 1,139.93.
More stocks fell than rose. On the New York Stock Exchange, losers topped winners by a more than 2-to-1 margin as 1.1 billion shares traded. Nasdaq decliners beat winners 5-to-3 as 1.6 billion shares changed hands.
In other markets, Treasury securities rose. The dollar gained against the yen and was little changed versus the euro.
Rate expectations
The Federal Reserve Tuesday is expected to cut interest rates for the 11th time this year, taking the overnight intra-bank lending rate to a fresh 40-year low of 1.75 percent from 6.50 percent this time last year.
The fourth rate cut since the Sept. 11 terrorist attacks would come during a good stretch for stocks. The Dow industrials are up 20.5 percent since Sept. 21, the market's low after the attacks. The Nasdaq is up 40 percent.
But the momentum that has driven the indexes to their best levels since August have lost steam since Wednesday.
"I think we are going to get a pause," Tony Dwyer, strategist at Kirlin Securities, told CNNfn's Market Call. "I do think that the Nasdaq has clearly overshot the fundamentals."
After an expected drop of 18.7 percent in the current quarter, profits at the nation's 500 biggest companies are forecast to decline another 4.4 percent during the first three months of next year, according to earnings tracker First Call. A rebound isn't seen until the second quarter, when profits are forecast to rise 10 percent before surging 29.9 percent in the third quarter.
With the market's autumn run-up, Thomas McManus, market strategist at Banc of America Securities, recommends investors lighten up on stocks in favor of bonds. He cut the stock portion of the firm's model portfolio Monday to 55 percent from 60 percent. Bonds were upped to 40 percent from 35 percent. The cash portion held steady at 5 percent.
"The market's progress since then (Sept. 21) seems excessive, given the challenging environment," McManus wrote in a note.
JDS, HP among most active
Nasdaq's third-most actively traded stock, JDS Uniphase, fell as much as 7 percent. The fiber-optic equipment maker said sales in the current quarter will fall 10 to 15 percent below the prior quarter and sales could slip another 10 to 15 percent in the quarter ending in March.
Hewlett-Packard also declined after its largest shareholder said it opposes the company's merger with Compaq, whose stock fell 10 percent. HP stock has fallen since the deal was announced earlier this year amid worries that a marriage with Compaq will further expose the company to the sluggish computer business.
Monday's Dow losers also included retailer Home Depot (HD: down $1.15 to $48.26, Research, Estimates), financial services firm Citigroup (C: down $1.29 to $47.92, Research, Estimates) and manufacturer Caterpillar (CAT: down $1.14 to $50.01, Research, Estimates).
But companies with business less tied to the economic cycles rose, including Procter & Gamble (PG: up $1.29 to $76.72, Research, Estimates) and McDonald's (MCD: up $0.12 to $27.02, Research, Estimates).
A busy week for economic indicators includes release of the November retail sales report Thursday and inflation data both Thursday and Friday.
Retail sales and prices paid by consumers and business are forecast to all fall in November, a month when more Americans found themselves out of work. The government Friday said the unemployment rate rose to a six-year high of 5.7 percent last month as employers cut 331,000 jobs.
By lowering interest rates, Fed policy makers are trying to encourage business and consumer spending. But the bond market isn't helping.
Rising Treasury yields are making it more expensive for home owners and companies to borrow money for longer periods of time, even as short-term lending rates fall. 
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