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U.S. stocks drop sharply
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October 15, 1999: 4:56 p.m. ET
Rising wholesale inflation, hawkish Greenspan warning trigger broad sell-off
By Staff Writer Malina Poshtova Zang
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NEW YORK (CNNfn) - U.S. stock markets tumbled Friday when a report showed a pickup in wholesale inflation only hours after Federal Reserve Chairman Alan Greenspan warned investors that a steep equity market plunge is possible.
The Dow Jones industrial average lost 266.90 points, or 2.6 percent, to close at 10,019 after briefly dipping below the psychologically important 10,000 level.
The blue chip index tumbled 630 points this week, its biggest weekly point loss in history. The Dow lost 5.9 percent this week, its gain for the year shrinking to 9.1 percent. The Dow is now 11.5 percent below its peak of 11,326.04, hit on Aug. 25, a retreat that is considered a market correction by Wall Street watchers. A loss of more than 20 percent would be considered an outright bear market.
Market breadth on the New York Stock Exchange was severely negative, with declines smothering advances by 2,371 to 706 on heavy trading volume of 910 million shares. "Double witching," which occurs when stock index futures and options expire simultaneously, added volatility to trading.
The Nasdaq composite index dropped 75.01 points, or 2.7 percent, to 2,731.83. The Nasdaq retreated 5.36 percent this week, cutting its advance for the year to 24.59 percent.
The S&P 500 index dropped 36.01 points, or 2.8 percent, to 1,247.41. The broad blue chip stock indicator shed 6.63 percent this week. The S&P 500 is now up 1.48 percent for the year.
Wall Street's worst fears -- that rising inflation could bring higher interest rates and that the market could face a severe correction -- both were fueled Friday, after Greenspan late Thursday told banks to stash reserves in case they have to face a big market downturn.
The damage was compounded early Friday morning when the Producer Price Index, the main indicator of inflation on the wholesale level, posted its largest increase in nine years in September.
The PPI gained 1.1 percent overall last month, while its core rate, which excludes food and energy components, rose 0.8 percent. In August, the PPI rose 0.5 percent.
Prices in the bond market initially fell -- and yields rose -- after the surprise spike in producer prices led investors to speculate that inflation pressure may be picking up faster than previously suspected. Greenspan's stern warning added weight on the market.
But the stock market's sharp sell-off led some investors to seek a safe haven in government debt, leaving the bellwether 30-year Treasury bond up 23/32 of a point in price, its yield at 6.26 percent, down from Thursday's 6.32 percent -- which was the highest the bond's yield has been in almost two years.
The bearish combination of rising producer inflation and a hawkish comment from Greenspan also weighed on the dollar, leaving the currency sharply lower against both the yen and the euro.
Rate sensitive stocks take a hit
Wall Street's two most interest rate-sensitive sectors -- banking and technology -- were among the hardest hit in the broad sell-off that struck the market.
Banks' lending business would slow down and a potential increase in debt defaults could hurt profitability if interest rates rose. At the same time, high-tech companies would have to curb their usually heavy borrowing, which they rely on to support their fast growth rates.
Among the leading financial stocks, American Express (AXP) shed 7 to 135, Citigroup (C) fell 1-9/16 to 42-3/8 and J.P. Morgan (JPM) dropped 5-3/16 to 105-11/16. All three are Dow components.
Meanwhile, some leading technology stocks managed to recover from their initial tumble. Among the high-tech blue chips, Dow member IBM (IBM) rose 7/8 to 107-7/8, while Hewlett Packard (HWP), also one of the 30 industrials, finished up 3/4 at 82-3/4.
On the Nasdaq, Microsoft (MSFT) lost 2-5/8 to 88-1/16, Intel (INTC) fell 2-15/16 to 70-7/8, Dell (DELL) dropped 1-17/32 to 42-13/16 and Cisco Systems (CSCO) retreated 2-3/16 to 67-3/16.
Earnings also in focus
Investors also pummeled stocks of companies that reported their latest earnings -- even when those results were better than expected.
Among those punished, Internet advertiser DoubleClick (DCLK) tumbled 14, or almost 11 percent, to 113-1/2, after the company reported a third-quarter loss that was slightly smaller than expected.
But better-than-expected fiscal first-quarter earnings at Sun Microsystems (SUNW) rescued that company's stock, which rallied 3-5/32 to 92-9/16.
And retailer Office Depot (ODP) saw its shares rise 1-3/8 to 10-1/2, a gain of more than 15 percent, after the company reported stronger-than-expected third-quarter results.
Finally, shares of Dow component Caterpillar (CAT) inched up 7/16 to 56-1/16 after the construction equipment maker reported stronger-than-forecast third-quarter profit, but said revenue for the full year will fall short of expectations.
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