U.S.

Wall Street Woes

By CBSNews.com staff CBSNews.com staff

February 16, 2001 / 11:15 AM EST / CBS

Wall Street plunged back into pessimism, sending stocks sharply lower Friday after Nortel Networks, Dell Computer and Hewlett-Packard warned that their business will further slow this year. A spike in inflation and trouble in the Middle East increased the market's woes.

Afternoon news reports of a U.S. and British air attack over Iraq added to the selloff. American and British planes reportedly struck Iraqi air defense sites in a mission to destroy threatening radar systems.

"The market just doesn't like today at all," said Dan Ascani, president and research director at Global Market Strategists in Gainesville, Ga.

In heavy, late afternoon trading on Wall Street, the Dow Jones industrial average fell 131.77 to 10,759.25.

"There's no catalyst for the market right now. We're still coming to terms with how deep [the economic slowdown] will be and when we'll be able to look beyond the bad news," Bryan Piskorowski, market analyst at Prudential Securities told CBS MarketWatch.

The tech-focused Nasdaq composite index tumbled 126.38 to 2,426.53, a 5 percent drop, after advancing the previous two sessions. The broader Standard & Poor's 500 index declined 28.28 to 1,298.33.

The market's losses came largely from the technology sector after several big companies issued disappointing outlooks for the year.

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Nortel plunged $9.90, or 33 percent, to $19.89. After the market closed Thursday, the fiber optics maker cut its profit outlook and raised its planned job cuts to 10,000.

A bleak outlook also hurt Dell, which fell $1.88 to $23.13. Dell announced late Thursday it missed earnings expectations by 1 cent and that it will cut 1,700 jobs.

Although layoffs reduce costs, typically causing a stock's price to pick back up, analysts said, this round of job cuts made investors frightened about how badly the economy is really hurting.

"When you have companies like Dell laying people off for the first time in 16 years, that marks a change in trend of the economy," Ascani said.

The Dow's tech losses were led by Hewlett-Packard, down $3.60 at $32.75. Hewlett-Packard also warned of challenging business conditions late Thursday. The computer maker's bad news spread to other Dow tech stocks, including Microsoft, down $2 at $56.81.

"There's a combustible combination of bad news out there," said Alan Ackerman, executive vice president at Fahnestock & Co.

The bad news combined, Ackerman said, to "bring back a lot of caution and exhaustion for traders who are trying to figure out where to go in the market, especially before a long, holiday weekend." The market is closed Monday in observance of President's Day.

Friday's losses were a dramatic retreat from the more optimistic approach investors had taken toward high-tech stocks in recent weeks. While Wall Street had tolerated individual companies' reduced business forecasts, the news of three dismal outlooks at once rattled the market.

But investors' skittishness extended beyond tech as they also bid down some stocks in less risky, so-called defensive sectors like pharmaceutical and consumer product issues.

Merck fell 74 cents to $77.36, and Johnson & Johnson slipped 40 cents to $93.80. But Procter & Gamble rose 75 cents to $74.61.

Investors also bid stocks lower after the Labor Department reported that wholesale inflation rose 1.1 percent in January, the biggest jump in a decade. The spike could diminish the chances that the Federal Reserve Board will lower interest rates at its meeting next month.

"It gave everyone the fear that the Fed will have to worry about inflation and won't be able to ease rates as much," said Ascani of Global Market Strategists.

The two cuts the Fed made in January are expected to help improve the sluggish economy and anemic corporate earnings in the second half of the year. Investors have been hoping for more reductions, although they were disappointed earlier this week when Fed Chairman Alan Greenspan indicated that future cuts will be less aggressive than the market had wanted.

Declining issues outnumbered advancers 2 to 1 on the New York Stock Exchange. Volume was 997.88 million shares, well ahead of 871.60 million at the same point Thursday.

The Russell 2000 index, which tracks the performance of smaller company stocks, was down 10.90 at 497.95.