- The Washington Times - Thursday, October 19, 2000

The stock market took a roller coaster ride yesterday on worries about the four "e's" energy prices, earnings, the elections and the euro.

The Dow Jones Industrial Average tumbled 435 points to its lowest level of the year at the opening of one of Wall Street's busiest days of trading after two blue-chip corporations IBM and J.P. Morgan became the latest to report disappointing earnings and a dimmer outlook for the future.

"We've gone from pricing in perpetual prosperity to suddenly worrying about a world of troubles," said Edward Yardeni, chief economist with Deutsche Bank Securities in New York. He said a sea change was taking place in the markets. "The perceptions of risk have changed."

Optimism has faded rapidly since the most-favored stocks in the market IBM, Intel, Dell, Lucent and other big technology corporations have warned in recent weeks that they cannot meet the sky-high expectations of investors who took for granted earnings growth of between 25 percent and 50 percent each year, he said.

The latest reminder that even the best-performing stocks don't always post stellar profits sent the Dow plunging by 4.3 percent, crashing through the 10,000 mark for the first time since March. A recovery later in the day pared some of those losses, with the Dow ending down 115 points at 9,975 down 15 percent from its high.

The Nasdaq Composite Index at the opening plummeted by 5.8 percent to just above 3,000 also its lowest level of the year before recovering some to end down 42 points at 3,172. The Nasdaq is down 40 percent and nearly 2,000 points from its spring record.

Blows came in rapid succession throughout the day: Oil prices, already high because of tensions in the Middle East, soared near $34 a barrel on news of drum-tight U.S. supplies that will continue to drive up costs for businesses and consumers. The jump in energy prices in the last year has pushed consumer prices up by 3.5 percent, the government reported.

The euro slumped to a new record low of 83.3 cents, adding to the woes of international corporations that were counting on growth in Europe. And polls continued to show the contest for the presidency and control of the House of Representatives too close to call, though the outcome could affect many stocks.

Confusion and uncertainty reigned as investors frenetically sold two stocks for every one they bought. Almost 2.5 billion shares traded on the Nasdaq stock market in its third-busiest day. More than 1.4 billion shares traded on the New York Stock Exchange, the fourth-largest volume ever.

The oil price spike and drop in the euro reminded investors that major international corporations will continue to see slower growth in earnings because of rising energy costs and slumping European sales, Mr. Yardeni said.

Even the big-name technology stocks have not been immune from the economic ailments, he said.

"They're stumbling, they're tripping," said Mr. Yardeni, and investors now realize that technology companies and the economy cannot perform flawlessly for years to come as they once expected.

"Technology had its own little party in the last two years, and now it's having a hangover," he said.

IBM stock dropped $17.56 to $95.44, erasing about $31 billion in market value, as the world's largest computer company said third-quarter sales were disappointing because it couldn't meet demand for some software and computers.

Also overhanging the markets is uncertainty about what policies the White House and Congress will pursue after the elections.

The markets have been happy with the gridlock between President Clinton and the Republican-led Congress that led to large budget surpluses, Mr. Yardeni said. Investors fear that could change next year if control of the White House and Congress falls to one party.

Still, the recent drubbing of stocks has left most of them with prices that reflect more realistic expectations for the future, he said. "By November or December, we'll pretty much have the capitulation stage behind us."

Greg A. Smith, stock strategist with Prudential Securities, also expects the market to do better after this season's earnings woes and the elections are over. "It's difficult to see how the stock market can sustain any improved outlook until we get past the elections."

The problems with the euro and high energy prices could continue to trouble the markets for some time, however, he said.

Alan Skrainka, chief market strategist with Edward Jones in St. Louis, said the market is coming to terms with a slower-growing economy and lower earnings, but today's troubles are temporary.

Meanwhile, the ruthless beatings of profitable company stocks like Home Depot and Dell have created a "rare, unique" buying opportunity for investors who are willing to hunker down and invest for the long term, he said.

"Some investors have become hopeless and distraught. But you have to have discipline and not let emotions drive your decision making," he said. "It is a new economy, but the old rules of investing still apply. Buy low and sell high."

More than one-third of the Standard & Poor's 500 corporations have reported profits so far in the third quarter, up an average 17.4 percent from a year ago, according to First Call/Thomson Financial. More than half of those reporting have beaten Wall Street expectations.

Still, analysts expect profit growth to slow to 14.5 percent in the fourth quarter, and even further next year, as high costs for energy and slower growth in sales weigh on corporate balance sheets.

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