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Dow falls nearly 400 points
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March 7, 2000: 7:08 p.m. ET
Blue chips plunge on P&G disappointment; Nasdaq 5,000 deferred
By Staff Writer Jake Ulick
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NEW YORK (CNNfn) - A surprise profit warning from one of Wall Street's big blue chips prompted investors to dump so-called old economy stocks Tuesday, pushing the Dow down by nearly 375 points. The Nasdaq composite, which flirted briefly with the 5,000 mark earlier in the day, finally succumbed to the selling pressure to close about 57 points lower.
The day began with an earnings warning by consumer products giant Procter & Gamble and ended with the blue chip index posting its fourth-worst point loss in history. By the time the dust had settled, nearly $300 billion in market capitalization was wiped out, leaving analysts to wonder whether the worst was over.
"I just think that oil, along with the direction of interest rates, clearly has put a big cloud over the stock market," Ted Weisberg with Seaport Securities told CNNfn's Street Sweep.
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Indeed, since the start of the year, the Dow is down 14.8 percent, thanks in part to higher oil prices and the threat of more interest rate hikes in the months ahead. On Tuesday, both of those fears proved real as Procter & Gamble said fiscal third quarter profits would fall short of expectations due to higher raw material prices. P&G shares tumbled 28 to 59-7/8, knocking off nearly a third of the company's value. 
Vince Farrell, chief investment strategist at Spears, Benzak, Salomon & Farell, said investors were clearly caught off guard by the warning.
"They had an analyst meeting in Houston last week, maybe the week before, and none of this was discussed, so this is kind of really new news," Farrell told CNNfn's Street Sweep. "And if you take one of your consistent growers and disappoint, then you`ve got to worry about what the growth rates can be for a lot of other things."
The Dow tumbled 374.47 points, or 3.6 percent, to 9,796.03. Procter & Gamble, the maker of Tide, Pampers and Crest, accounted for 142.5 points of the Dow's plunge.
The sell-off spread to the Nasdaq, which fell 57.04 points, or 1.1 percent, to 4,847.81. The late-session losses came after the Nasdaq spent most of the day above its 4,914.79 record set Friday. The index rose briefly above 5,000, the highest level in its 29-year history.
Still, the Nasdaq's relative performance remains intact, as stock investors chase the index's high-flying growth companies and run from so-called 'old- economy' stocks with lagging earnings.
But Alan Skrainka, chief market strategist at Edward Jones, disputes the idea that new economy stocks can exist without the old economy.
"It assumes that we're all going to be sitting around in the dark, naked and hungry and surfing the Internet," he told CNNfn's market coverage.
The broader S&P 500, meanwhile, slipped 35.66 points, or 2.5 percent, to 1,355.62.
More stocks fell than rose. Decliners on the New York Stock Exchange topped advancers 2,080 to 973. Big board volume topped 1.3 billion. Nasdaq losers beat winners 2,578 to 1,754. More than 2.1 billion shares changed hands.
Treasury securities were mixed. The dollar fell against the yen but was little changed versus the euro.
Dow revisits 10,000
The Dow's losses Tuesday have one clear catalyst: Procter & Gamble.
P&G's earnings woes spread to other consumer-products makers like Gillette Co. (G: Research, Estimates), off 2-7/16 to 32-7/16 and Unilever (UL: Research, Estimates), down 2-1/16 to 22-3/16.
"Unfortunately, everyone else is guilty by association with Procter missing (its earnings estimates), and everyone worries about who else in the Dow will miss," Art Hogan, chief market strategist at Jefferies & Co., told CNN's In the Money. "I think it's a clear sign of investors' overreaction."
Similarly, Larry Wachtel, market analyst at Prudential Securities, discounted significance of the slide.
"What you see is the absurdity of looking at the market through the prism of the Dow," he told CNNfn's market coverage. "You're talking about Procter & Gamble and General Electric (GE: Research, Estimates) and a couple of components and people say it's a disaster on Wall Street."
General Electric fell 5-21/32 to 131-25/32.
Divergence still a theme
Tuesday's Dow slide, though dramatic, is nothing new. The Dow continues to languish as investors fret that climbing interest rates, which make borrowing money more expensive, will hurt corporate profits.
Tech companies -- less dependent on banks for raising money -- have proven immune to rising interest rates, even as the Federal Reserve tightened credit four times since June.
The Nasdaq is up more than 20 percent this year. The divergence continued early Tuesday, when the Nasdaq rose as much as 98 points, to a record intraday high of 5,006.78 after a government report showed worker productivity soared while labor inflation remained tame -- a development analysts say could keep the Fed from hiking rates aggressively. Productivity jumped 6.4 percent in the fourth quarter, while labor costs fell 2.5 percent, the government said in a revision of previously announced figures.
"The productivity numbers were very good," said Barry Hyman, chief market strategist at Ehrenkrantz King Nussbaum. "Combine that with another traditional economy company (Procter & Gamble) coming out with a lackluster forecast" and that helps explain the Nasdaq/Dow divergence.
Ahead, Joseph McAlinden, chief investment officer at Morgan Stanley Dean Witter, told CNNfn's market coverage that he expects the Nasdaq to continue its strong rally before settling into a corrective mode. (384K WAV) (384K AIFF).
VeriSign slides, Network Solutions soars
Analysts also linked the Nasdaq's early jump to optimism over the latest big technology deal. VeriSign Inc., a provider of Internet trust services, agreed to acquire Network Solutions Inc., the world's leading provider of Internet domain name registration, for $21 billion in stock.
VeriSign Inc. (VRSN: Research, Estimates) plunged 47-7/16 to 200. Network Solutions (NSOL: Research, Estimates) surged 46-3/4 to 407-3/8.
Dow winners
Twenty-six of the Dow's 30 stocks fell Tuesday. Still, a few gainers emerged. Exxon-Mobil (XOM: Research, Estimates) rose 7-9/16 to 80-1/2 as investors focused on higher oil prices.
Farrell said the rally in oil stocks and oil services firms is likely to continue in the weeks ahead.
"I think that the strength you saw in oil stocks today is going to continue and I would be unhesitatingly a buyer of energy," he said. "It's been down for so long and I don't think it anywhere near reflects what the value of the underlying commodity is."
Microsoft (MSFT: Research, Estimates). A Goldman Sachs analyst said settlement talks between the company and the government's antitrust division appeared to be "heating up."
(Click here for a look at CNNfn's hot stocks.) 
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