Blue-chip stocks took a beating Friday to close out another down week, providing a stark contrast from a year ago, when the Dow Jones industrial average reached its all-time high.
While technology stocks have recorded some gains so far this year on some renewed optimism in the sector–the Nasdaq composite index gained 218.85 points, or 9 percent, for the week–blue chips have continued to display weakness.
For the week, the Dow slid more than 136 points, or 1.3 percent, to close at 10,525.38. On Friday, the index lost 84.17 points as more investors worried about corporate profits and interest rate policy, leaving it 10.2 percent below the record close of 11,722.98 on Jan. 14, 2000.
The week’s moves surely befuddled many investors, who had hoped the biggest firms would provide a haven in volatile times as the economy softens.
Instead, big-name consumer and industrial firms lost ground Friday. Among the losers: Citigroup, which fell $1.87, to $53.12; Caterpillar, which lost $1.75 to end at $43.69; Procter & Gamble, which dropped $2.44, to $70.31; General Electric, shedding 87 cents, to $45.69; and United Technologies, giving up $3.19 to end at $70.69.
Reports on retail sales and producer-level inflation showed the economy may still be growing at a decent clip, heightening concerns that the Federal Reserve might not be as vigorous in lowering rates again to keep the economy from slowing too much.
Earlier this month, the Fed unexpectedly cut interest rates by 50 basis points. Its policymaking group, the Federal Open Market Committee, meets at the end of January.
The producer price index was unchanged for December, but core PPI, which excludes often-volatile food and energy prices, rose a higher-than-expected 0.3 percent. Retail sales were less bleak in December than expected, rising 0.1 percent.
That apparently provided little incentive for investors to return to blue chips. The Dow has advanced in only three of this year’s trading sessions, including the 299-point advance after the surprise Fed cut. For the year, the Dow is down nearly 2.5 percent.
Since the Dow record last January, more than half of the index’s components are in negative territory, with nearly a third down more than 30 percent.
The beleaguered Nasdaq, meanwhile, has experienced something of a resurgence, despite Friday’s 14.07-point drop, and is up more than 6 percent in the early going of 2001.
“The Nasdaq got beaten up more than the Dow last year, and with all that pessimism, it’s not at all surprising for the Nasdaq to make up some ground,” said Jay Mueller, chief economist for Strong Investments in Milwaukee.
That said, investors seeking safety in a choppy market need to look more for individual performers than to the index for shelter, he said.
“The big, safe havens aren’t what they used to be,” Mueller said. “AT&T used to be a monopoly, and now it is in a rapidly changing market. It’s hard to say what’s a defensive play anymore.”
Some value-based mutual fund managers agreed.
“Nothing changed in the last month with United Technologies, but they went from $70 to $80 and back to $70,” noted value-fund manager Raymond McCaffrey of Pilgrim Baxter & Associates.
Others read fewer ominous signs into the blue-chip decline.
“I think it is just profit-taking,” said James Crawford, senior vice president at Trevor Stewart Burton & Jacobsen. “The slowdown … is not going to go away overnight, so you will get some profit-taking.”
Still, money managers and economists said the continuing volatility reinforces the lesson that valuation still matters in stock prices these days, and that bigger doesn’t necessarily mean safer.
“A big stock with a 60 P/E ratio is not all that defensive,” Mueller said. “Small stocks that are beaten up might be more defensive.”
AN UNHAPPY ANNIVERSARY
While the Nasdaq composite index has had a closely watched 48 percent drop from its record-high close last March, the Dow Jones industrial average has fallen more than 10 percent from its record close of a year ago. Several Dow components have fallen much further, particularly technology issues, with almost a third falling more than 30 percent.
Dow stocks, ranked by biggest drops since Jan. 14, 2000
%% Company Jan. 14, 2000, Friday Pct.
close close change
AT&T $54.69 $24.44 -55.3%
Microsoft 112.25 53.50 -52.3
Procter & Gamble 117.00 70.31 -39.9
Intel 51.53 32.12 -37.7
DuPont 67.39 43.19 -35.9
General Motors 82.25 52.87 -35.7
International Paper 55.87 36.94 -33.9
Eastman Kodak 60.56 40.87 -32.5
Hewlett-Packard 43.90 30.69 -30.1
Honeywell International 59.87 46.50 -22.3
IBM 119.62 93.81 -21.6
McDonald’s 42.61 33.62 -21.1
Alcoa 40.00 31.81 -20.5
Home Depot 61.75 49.12 -20.4
Wal-Mart 64.50 52.94 -17.9
Caterpillar 51.94 43.69 -15.9
Dow index 11,722.98 10,525.38 -10.2
American Express 53.17 47.94 -9.8
General Electric 50.33 45.69 -9.2
Coca-Cola 61.06 56.62 -7.3
Walt Disney 33.56 31.56 -5.9
Exxon Mobil 83.75 82.81 -1.1
Johnson & Johnson 93.69 94.56 +0.9
J.P. Morgan Chase* 49.25 53.31 +8.2
Merck 73.75 81.44 +10.4
3M 99.31 109.69 +10.4
United Technologies 63.81 70.69 +10.8
SBC Communications 41.94 50.94 +21.4
Citigroup 43.50 53.12 +22.1
Boeing 44.00 60.62 +37.8
Philip Morris 24.06 42.25 +75.6
* Resulting from Jan. 2, 2001, merger of J.P. Morgan and Chase Manhattan
Source: Bridge
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