- The Washington Times - Friday, December 1, 2000

The stock markets dived yesterday, driven by worries about the slowing economy and weak corporate profits.
The Nasdaq Composite Index, dragged down by an earnings warning from computer giant Gateway Inc., fell as much as 183 points, bringing it to 50 percent of its record high of 5,048 on March 10. The technology-heavy index later recovered somewhat, closing down 109 points to 2,598.
"More and more companies are coming in and saying business stinks," said Larry Watchtel, a market analyst with Prudential Securities in New York.
The Dow Jones Industrial Average fell 215 points to 10,414 yesterday, after dropping as much as 337 points.
The Nasdaq is down 48 percent from the March 10 high and 36 percent for the year. The Dow has lost 9 percent of its value this year.
The Federal Reserve raised interest rates six times since June 1999 in an attempt to ease the red-hot economy into a slowdown rather than a crash. The current economic expansion enters its 116th month today.
But evidence is piling up that Fed Chairman Alan Greenspan's hoped-for "soft landing" might be a pipe dream.
"The odds are against a soft landing," said Alan Skrainka, chief market strategist for Edward Jones in St. Louis.
The falling markets, dropping corporate profits and economic reports from home sales to factory orders to consumer confidence, point to an economic slowdown.
The government said yesterday that consumer spending rose a meager 0.2 percent in October and personal income fell for the first time in two years, with the latest data disheartening economists.
The recent spate of corporate profit warnings are a key indicator the economy is slowing, Mr. Wachtel said.
The latest was Gateway, which said after the markets closed Wednesday that it expects fourth-quarter revenue of about $2.55 billion, $500 million below previous estimates. The company also lowered its earnings estimates for 2001 to $1.89 per share from $2.28 per share.
Fourth-quarter corporate profits were projected at 16 percent as late as June, Mr. Skrainka said. Estimates since have been adjusted to 8 percent.
For the third quarter, companies' after-tax profits rose only 0.6 percent, the weakest performance in nearly two years, the government reported Wednesday.
In another sign of economic weakness, the Labor Department said yesterday the number of laid-off workers filing new claims for unemployment benefits rose to 358,000 last week, the highest level in more than two years.
The dollar slumped against the euro and most other currencies yesterday as traders sold greenbacks on concerns over falling stocks and growing signs of an economic slowdown.
The markets' poor performance is having an effect internationally as well. The Russian Trading System, the country's main stock market, suspended trading yesterday as the index dropped as much as 10.5 percent to its lowest since December 1999.
"The only thing that is going to settle nerves is some stability internationally," said Chris Weafer, director of research at Troika Dialog brokerage. "There is nothing Russia can do that will make a difference."
Despite fears about computer sales and the weak spending statistics released yesterday, some analysts expect a relatively strong holiday retail season.
"Even with the slowdown in the economy, we're not convinced that retail sales are going to be a flop" because unemployment remains low and job creation continues to be high, said Richard Babson, an economist and chairman of Babson United Investment Advisors.
Richard Yamarone, a senior economist at Argus Research Co., said government figures on consumer spending and income are not too different from last year's numbers.
But Mr. Wachtel said profits will be down this holiday season because retailers will be forced to slash prices and heavily promote sales and products.
Mr. Yamarone and Mr. Babson were not convinced that the Fed will fail in bringing in an economic slowdown gently.
"No, we're not traveling at 100 miles per hour any longer. But that doesn't mean we've come to a complete halt, either. We're probably running around 55 miles per hour, right where Officer Greenspan wants us to be," Mr. Yamarone said.
This story is based in part on wire-service reports.

LOAD COMMENTS ()

 

Click to Read More

Click to Hide