- The Washington Times - Friday, June 7, 2002

NEW YORK (AP) Wall Street's fortunes turned negative again yesterday as a downgrade of chip makers by Merrill Lynch and disappointing retail sales gave investors more reasons to doubt the strength of a business recovery. Stocks fell sharply, with the tech sector suffering the heaviest losses.

It appeared likely that the selling would continue today. After the end of regular trading, Intel reduced its second-quarter revenue outlook, blaming slumping demand for chips in Europe. The bellwether's stock fell sharply in the after-hours market, and it was joined by other high-tech issues.

"The market is in a very bad downtrend," said Gary Kaltbaum, market technician for Investors' Edge Partners in Orlando, Fla.

After a respite Wednesday, the market resumed a decline that had lasted more than a week and gave back gains from a rally in the previous session. Investors are selling on worries about earnings, mistrust of corporate accounting, and international conflicts between India and Pakistan and Israel and the Palestinians.

The Dow Jones Industrial Average closed down 172.16, or 1.8 percent, at 9,624.64. The loss easily wiped out the Dow's 108.96-point gain from Wednesday, when all of the market's major indicators finished higher for the first time in nearly two weeks.

The broader market also fell sharply. The Nasdaq Composite Index dropped 40.38, or 2.5 percent, to 1,554.88, losing all of its 17.14 advance from Wednesday.

The Standard & Poor's 500 Index fell 20.75, or 2.0 percent, to 1,029.15, erasing the 9.21 gain from Wednesday.

Analysts said the market's persistent selling was no surprise because earnings remained depressed, jeopardizing the recovery that investors had hoped would happen in the second half of 2002.

Fears of improper bookkeeping involving Tyco and several other companies, and coming in the wake of Enron's collapse and worries about tensions overseas also have given investors little reason to buy. The market was anxious about a terrorism update by President Bush, scheduled to be broadcast in the evening.

"There is just nobody buying. You still have the same problems in the Middle East, the terrorist scares, a downgrade of Intel and semiconductors. There just isn't any good news right now," said Barry Berman, head trader for Robert W. Baird & Co. in Milwaukee.

During the regular session, Intel fell $1.18 to $27 Monday after Merrill Lynch lowered its near-term rating on the stock to "neutral" from "strong buy." After issuing its warning, Intel fell another $2.72 in extended trading.

Also downgraded by Merrill, Texas Instruments fell 75 cents to $27.69 in regular trading and lost another $1.54 in the extra session.

Microsoft, which rose 24 cents to $51.90 in regular trading, fell in sympathy with Intel after hours, dropping $1.70.

Weak retail sales in May also drove the market lower. Ann Taylor fell $1.28 to $26.80 after reporting a 5.2 percent decline in sales from stores open at least a year. Sears stumbled $1.76 to $56.26 after reporting that sales slumped 4.4 percent decline at its department stores.

Tyco plunged nearly 16 percent, down $2.70 at $14.60, on concerns that former chief executive Dennis Kozlowski abused company funds. New York prosecutors are investigating whether Mr. Kozlowski tapped company accounts to buy his $18 million New York apartment, or whether he obtained interest-free loans from Tyco to buy artwork. The Securities and Exchange Commission also has opened an investigation, according to a report in the Wall Street Journal.

While the market has dropped significantly in recent sessions with the Dow falling on Monday to levels not seen since early February, and the Nasdaq suffering its lowest close since Oct. 2 many analysts see no sign of reprieve for Wall Street.

Analysts also believe the market is poised for a third straight yearly decline. So far in 2002, the Nasdaq has taken the biggest hit, down 20.3 percent. The S&P 500 is down 10.4 percent, while the Dow is off nearly 4 percent.

"To get things going, you have to beat earnings and beat them good," Mr. Kaltbaum said.

Meeting already-lowered expectations isn't enough to inspire investors to buy and hold on to shares, he said.

Declining issues outnumbered advancers more than 2 to 1 on the New York Stock Exchange. Volume came to 1.59 billion shares, ahead of the 1.29 billion shares on Wednesday.

The Russell 2000 index, which tracks smaller company stocks, fell 9.75, or 2.1 percent, to 465.29.

Overseas, Japan's Nikkei stock average fell 0.8 percent. In Europe, France's CAC-40 gained 0.5 percent, Germany's DAX index rose 0.7 percent, and Britain's FTSE 100 fell 0.6 percent.

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