The old economy stumbled beside the new economy Thursday, sending major stock indexes broadly lower in heavy trading.
Profit warnings by computer-technology companies and fresh evidence of weakening economic growth produced declines across the board as both New York and Nasdaq volume reached the second-highest level ever: The Dow Jones industrial average dropped more than 336 points during the session and the Nasdaq composite index fell nearly 184 points, but both made up ground before the close.
The monthly business conditions index compiled by Chicago-area corporate purchasing managers this month fell sharply from the October reading, reflecting weakness in automobile production and confirming evidence that the so-called old economy is grinding slower.
“We’ve had an economy that’s been going at 80 miles an hour, and we’re slowing down to the speed limit,” said David Allardice, senior vice president at the Federal Reserve Bank of Chicago and manager of the bank’s Detroit branch.
“When that happens, you feel like you’re backing up. That’s the problem we’re trying to sort out right now. We’re not talking about bad times.”
With near-term profit outlooks eroding, Nasdaq stocks fell 109 points, or 4.0 percent, to 2597.93, down nearly 50 percent from their March 10 peak and the lowest level since Aug. 12, 1999. Volume of 2.73 billion shares was the second-highest ever, behind the April 4 record of nearly 2.9 billion shares, with losers outnumbering winners by more than 2-1.
Outside technology, there were few places to hide Thursday. Declines in oil, pharmaceutical and several major retailing stocks extended the day’s woes.
Drug giant Merck hit an all-time high, $96.69, during the session but closed down more than 2 percent for the day, to $92.69.
Oil stocks, another strong sector this year, slumped along with crude oil futures prices, as the U.S. government promised to tap the nation’s strategic oil reserve if Iraq cuts off oil exports. Utility stocks, a safe haven for much of the year, slipped, despite a healthy decline in long-term interest rates.
The Dow Jones industrial average lost 214.62, or 2.0 percent, to 10,414.49. New York Stock Exchange volume totaled 1.51 billion shares, the second-biggest daily volume ever, narrowly behind the April 4 record. Losers topped winners by a nearly 2-1 ratio among NYSE-listed stocks
The latest round of selling in technology stocks began late Wednesday, when computer merchant Gateway and semiconductor-maker Altera warned of disappointing fourth-quarter results.
A similar warning by Hewlett-Packard on Thursday magnified negative sentiment toward tech stocks.
Despite the nerve-racking statistics for Nasdaq stocks as a whole, the picture was mixed. The Nasdaq 100 trust, an exchange-traded fund comprising 100 of the biggest Nasdaq stocks, closed fractionally higher.
Oracle, a major component of the Nasdaq 100 index, advanced 16 percent for the day, to $26.50, after an upbeat recommendation by a Credit Suisse First Boston analyst. Vertitas Software, another Nasdaq 100 component, jumped 11 percent, to $97.56.
The Russell 2000 index of small-company stocks dropped 8.66, or 1.9 percent, to 445.94.
“The stock market doesn’t look good right now,” said Bradley Tank, director of fixed-income investing at Strong Investments in suburban Milwaukee. “A lot of capitalization has piled up in the aggressive growth space. It’s unwinding pretty quickly.”
But Tank said he sees no sign of a recession and said he believes the Federal Reserve will cut short-term interest rates early next year.
He cautioned, nonetheless, that a sustained and broad decline in stock prices could darken the economic outlook for 2001.
According to 401(k) retirement account activity trends tracked by Hewitt Associates of Lincolnshire, investors enrolled in 401(k) plans did not panic in November.
There were no abnormal movements of 401(k) money, although daily transfers into fixed-income funds outnumbered transfers into equity funds during the month, Hewitt said.
Treasury bonds rallied Thursday, sending the yield on 30-year bonds down to 5.58 percent, the lowest level since April 1999, from 5.64 percent late Wednesday.
On the other hand, high-yield corporate bonds, known as junk bonds, headed in the other direction–higher yields and lower prices.
Bond rating downgrades have been more than four times more frequent than upgrades in the current quarter, according to Moody’s Investors Service. Moody’s said the credit quality of corporate debt is the worst since the 1991 recession. Bond defaults have totaled $37.7 billion this year, with 104 companies defaulting, equal to the record set for all of 1999.
The dollar slipped against major foreign currencies, reflecting stress in the U.S. stock market and the prospect of lower short-term U.S. interest rates as economic growth slows.
