- The Washington Times - Saturday, August 18, 2001

Sour news hit the stock market yesterday, catching stocks from computers to cars to clothing in a downdraft that left the Dow Jones Industrial Average 152 points lower.
The market got off to a slippery start with release of an international trade report that suggested that, despite domestic strength, the U.S. and global economies are inching toward recession.
Then it got hit with an appeals court ruling slapping down Microsoft's request to hold off a new penalty phase in the antitrust case against the software giant.
Ford Motor Co., the Gap and Dell Computer also weighed down the market with profit warnings for the rest of the year, with the automaker announcing that cutthroat competition for consumers' dollars was forcing it to eliminate as many as 5,000 North American management jobs.
The news sliced as much as 204 points off the Dow before it ended down 1.5 percent at 10,241. But it was the tech-oriented Nasdaq Composite Index that bore the brunt of the selloff, dropping by 3.3 percent, or 63 points, to 1,867. The Nasdaq is down 8 percent so far this month.
"Everyone was expecting to come back from summer vacation and find a better stock market, but all they're getting is more and more profit warnings and bad news," said Michael Cheah, a manager at SunAmerica Asset Management.
The news came one day after several economic reports that were good news for consumers. Consumer prices fell 0.3 percent, their biggest drop in 15 years, and construction starts increased to their fastest pace in almost a year and a half.
Yesterday's news took another chink out of the dollar, which posted its sixth straight losing week against the euro, while it spawned a flight into safe-haven U.S. Treasury bonds.
The trade report showed that U.S. exports dropped 2 percent in June and that imports fell by 0.7 percent — a third straight month of contraction in U.S. trade with the rest of the world. Economists said the drop in exports means U.S. economic growth likely fell to or below zero in the spring quarter.
"The U.S. economy might continue to skirt a recession. The global economy, on the other hand, is falling into one now," said Ed Yardeni, chief investment strategist with Deutsche Banc Alex. Brown.
The deep, global recession in manufacturing and technology has hit countries such as Japan, Germany and South Korea harder than the United States because their economies are not as diversified, he said. The U.S. economy has been kept afloat in recent months by its strong domestic housing and service industries, including government spending.
"The global economy is sinking fast," and that has caused another letdown for U.S. manufacturers, which export about a third of what they produce, he said. Moreover, even companies such as Ford, which enjoyed record sales earlier this year, have not been able to earn money because of the brutal competition for dwindling customers. The severe profits crunch is forcing them to lay off workers, which in turn threatens the broader economy, Mr. Yardeni said.
Ford fell $1.77 to $21.70 on the New York Stock Exchange after announcing the job cuts and warning that its full year earnings will fall short of expectations. Competitor General Motors stumbled $3.10 to $59.47 and was the weakest Dow industrial. Analysts said the market outlook for all automakers is dimming.
"Everyone was hoping there was a recovery," said Prudential Securities analyst Michael Bruynesteyn. "There's been no pain yet — the pain is still going to come."
"The bottom line is the market is coming to the realization that the second-half recovery is not going to be," said Gary Kaltbaum of Investors' Edge Partners.
This story is based in part on wire service reports.


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