- The Washington Times - Thursday, December 21, 2000

From combined dispatches

NEW YORK Fears about a harsh economic slowdown and continuing weakness in corporate earnings sent stocks sliding yesterday, with the Dow Jones Industrial Average giving up more than 260 points and the Nasdaq Composite Index hitting another low for the year.

Disappointed that the Federal Reserve declined to lower interest rates Tuesday and scared that the Fed has acknowledged the economy may be slowing too much and too fast, investors dumped both high-tech shares and blue chips.

"Investors are seeing a confirmation from the Fed that the economy is very weak and that earnings are going to be pretty poor and that assistance from the Fed is not going to be right away," said A.C. Moore, chief investment strategist for Dunvegan Associates in Santa Barbara, Calif.

The Dow fell sharply, closing down 265.44 at 10,318.93, while the Nasdaq finished down for the seventh straight session, falling 178.93 or 7 percent to 2,332.78. It was the Nasdaq's lowest close since March 23, 1999, when it ended at 2,322.84.

The technology-heavy Nasdaq is down about 43 percent so far this year and has fallen more than halfway from its record close of 5,048.62 set on March 10, 2000.

The broader Standard and Poor's 500 index yesterday stumbled 40.86 to 1,264.74.

President-elect George W. Bush's appointment of Alcoa Chairman Paul O'Neill as the new Treasury secretary seemed to hold little sway with investors, analysts said.

In announcing that appointment at a press conference in Austin, Tex., Mr. Bush said he, too, saw "warning signs of a possible slowdown", and tied the slowing economy to his $1.3 trillion tax-cut plan.

"I believe strongly that tax relief is part of the prescription for any economic ill that our nation may have," Mr. Bush said.

"I am hopeful that this economy stays strong… . But I am also a realist and one of my jobs is to think ahead just in case," he added, referring to the Fed's view that the economy now faces a greater risk of a downturn. "The Fed sent the signal and we are going to play the hand we have been dealt.

"Our hope in this administration is that our economy remain robust, but should it not, we have a plan, the cornerstone of which will be tax relief, free trade, Social Security reform, less regulations," he said.

Stocks have been heading lower since around Labor Day, as investors have sold off stocks mainly in the high-tech sector based on fears that profits would be further pinched by an economic slowdown, high interest rates and decreased consumer confidence. Meanwhile, a litany of companies have warned that future earnings would indeed be disappointing.

"We've actually had a crash over the last few weeks, not a one-day crash," said Ricky Harrington, a technical analyst for Wachovia Securities. "I think we are getting close to a short-term bottom, the beginning of a technical rebound."

Typical year-end tax-loss selling compounded yesterday's drop in the market, analysts said.

But with the year almost over and with most stocks at bargain-basement prices, "we are very close to a start of a spectacular January rally," Mr. Harrington said.

A rally early next year likely will be concentrated among tech stocks, which have plummeted from premium prices, Mr. Harrington said. Blue chips haven't been hit as hard, because investors have been redirecting their tech investments into shares of popular consumer brands, drug makers and financial companies.

Another analyst predicted investors could abandon their Scroogelike way of selling to bid stocks up later this week.

"The rally starts very soon," said Larry Rice, chief investment officer at Josephthal & Co. "We are ridiculously oversold."

Still, most analysts believe that any upcoming rally will be a short rebound and that the market will remain bearish through the first quarter.

Yesterday's high-tech losers included Cisco Systems, which skidded $5.25 to close at $36.50 in extremely heavy trading after Merrill Lynch cut its rating on the network equipment maker.

Other tech stocks brought the Dow lower. Computer makers Hewlett-Packard and IBM slumped after Merrill Lynch also downgraded those stocks. Hewlett-Packard fell 88 cents to $30.44, and IBM tumbled $4.13 to $86.

But the Dow's losses were practically across the board. General Motors fell $1.88 to $50, and AT&T; lost $1.63, closing at $18.94 before warning that fourth-quarter earnings will fall short of expectations.

Retail stocks, battered by declining consumer confidence and a lackluster holiday shopping season, posted more losses. Despite faring better than most competitors, Target fell 56 cents to $28.19. Home Depot, which is a Dow industrial, slipped $1.50 to $41.13.

But drug makers gained ground. Merck rose $1.88 to $93.38, and Johnson & Johnson climbed $1.44 to $100.63.

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