- The Washington Times - Saturday, July 20, 2002

The Dow Jones Industrial Average yesterday plunged nearly 400 points in a stunning sell-off that sent it careering briefly below 8,000 and settling at a level not seen since October 1998.
"It's psychological black death out there," said Alan Hoffman, portfolio manager at Value Line Asset Management. "No matter what I think, the market goes down. I don't have any projections or investment advice."
The blue-chip index's seventh-largest drop of 390 points to 8,019 capped a tumultuous two-week rout marked by the largest declines in major stock indexes since the October 1987 stock market crash.
Yesterday's drops in the Nasdaq Composite Index and the Standard & Poor's 500 Index were more muted than the Dow's 4.6 percent fall, but those broad market indexes already were trading at 1997 levels.
The busiest day ever on the New York Stock Exchange, with 2.63 billion shares changing hands, left the major indexes down 20 percent to 32 percent for the year, with most of the losses posted in the past two weeks.
Investors have lost $7.7 trillion in market value since the bear market started in March 2000. About $3.1 trillion has been lost this year alone.
Yesterday's sell-off was triggered by news of a government investigation of practices at Johnson & Johnson drug factories, feeding investors' fears that one of the last strongholds in the market pharmaceutical stocks is being dragged down by the unrelenting bear market. Johnson & Johnson stock fell $7.88 to $41.85.
But the news came amid deteriorating earnings forecasts, more reports of corporate scandals and worries that the economy is not recovering in a way that is supporting the market as seen in a report yesterday showing that the trade deficit hit a new record of $37.6 billion in May.
"There is just no good news out there right now, and people are not willing to get involved in the market going into the weekend," said Bryan Piskorowski, market commentator at Prudential Securities. "You've got a buyer's strike going on."
Art Hogan, chief market strategist with Jefferies & Co., said investors became unnerved when the Dow started crashing through support levels and hitting multiyear lows.
"The technicians began to scream 'the sky is falling,'" he said. He also attributed the market's dramatic downfall to a lack of buyers and too many sellers.
"In history, there has never been such a disconnect between the economy and the market," he said. "No one seems to be paying attention to the fact that the U.S. economy is doing extremely well."
While some economists said yesterday's trade deficit report from the Commerce Department showed that the economy is strong because it is pulling in imports at a robust rate that outpaced growing exports, others said the news of mounting international debt was the last thing the market needed.
Foreign investors, already spooked by the market's steep declines this year, see bloated trade deficits as evidence that the United States is living beyond its means. They fear U.S. growth that is increasingly dependent on massive borrowing from the outside world.
Overseas investors pulled their money out of stocks yesterday, sending the dollar to a 2-year low against the euro and 17-month low against the yen. Foreigners cut their investments in U.S. securities by 56 percent in the first quarter, a pace that has accelerated in recent weeks.
"What's concerning the market is how that deficit is going to be funded," said Kamal Sharma, a currency strategist at Commerzbank AG in London. "We have seen a slowdown in inflows into U.S. assets."
Peter Cooke, a portfolio manager at Glenmede Trust Co., has been selling stocks and putting the money into bonds or leaving it in cash.
"More and more people are getting out," he said. "They've watched their portfolios go down, down, down, and now they just want to protect what they've got."
While a smattering of companies have reported that their third-quarter earnings will surpass Wall Street estimates, twice as many have said their earnings will be lower than forecast, according to Thomson First Call.
The market was particularly weighed down by forecasts of slower growth and sales by Microsoft Corp., Sun Microsystems Inc. and PepsiCo Inc. Sun's stock fell $1.55 to $4.25, while PepsiCo's dropped $4.10 to $36.20 and Microsoft declined $1.55 to $49.56.
"Business is not looking so good going forward," Mr. Cooke said. "That doesn't give you any great optimism that these companies can support the kind of earnings growth they require."
More corporate scandals hit the market. Nicor Inc., an Illinois utility, disclosed losses and improper bookkeeping of revenues from a joint venture with Dynegy Inc., sending the stocks of both companies plummeting.
HPL Technologies Inc., a software maker, fired Chief Executive David Lepejian and said it is investigating accounting irregularities that resulted in the improper booking of a "material amount" of revenue. Its stock fell $9.86 to $4.24 before the Nasdaq halted trading.
DaimlerChrysler AG stock tumbled 8.2 percent after announcing that the U.S. Justice Department is conducting a criminal probe into charges of price-fixing at its Mercedes-Benz dealers.
"The market is in an unforgiving mode right now," said Andy Brooks, head of stock trading at T. Rowe Price Group Inc. in Baltimore.
This article is based in part on wire-service reports.

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