- The Washington Times - Monday, May 19, 2003

NEW YORK (AP) — Wall Street suffered its biggest decline in nearly two months yesterday as investors grew nervous that a declining dollar would dampen foreign investment in the United States. The Dow Jones industrials slid 185 points.

Analysts said a U.S. Supreme Court ruling that could force drug manufacturers to lower prices in Maine also prompted investors to cash in profits after several weeks of gains. Light volume, meanwhile, accentuated price swings.

“The concern is that foreign investors could be selling U.S.-based holdings and going overseas with their investment capital,” said Jim Russell, director of core equity strategy for Fifth-Third Bank.

“We also think the market is down because it has had such a strong run-up postwar,” he added. “The market is ready for a pause. … We would expect a pullback of modest proportions over May and June.”

The Dow closed down 185.58, or 2.1 percent, at 8,493.39, having gained 0.9 percent last week to post its third winning week. It was the biggest point decline since March 24, when the blue chips lost 307 points.

The broader market also finished lower. The Nasdaq Composite Index fell 45.76, or 3 percent, to 1,492.77, also the biggest drop since March 24, when the index declined 52 points. That came after last week’s advance of 1.2 percent, the index’s fifth straight week of gains.

The Standard & Poor’s 500 index dropped 23.53, or 2.5 percent, to 920.77, after rising 1.2 percent to also notch its fifth winning week. It was also the biggest one-day loss since March 24, when the index fell 31 points.

The dollar slid to multiyear lows against the euro and the Japanese yen after U.S. Treasury Secretary John W. Snow over the weekend called the dollar’s recent losses “fairly modest.” He added that market fundamentals should determine the dollar’s value.

Disappointing retail sales also weighed on stocks.

Lowe’s dropped $4 to $40.30 after the nation’s second-largest home-improvement chain reported first-quarter earnings that beat analysts’ expectations by a penny; however, its same-store sales, those from stores open at least a year, fell below the company’s estimates.

Home Depot, Lowe’s rival and a Dow component, also fell on the news, dropping $1.12 to $28.07. The company reports its quarterly earnings today.

Stocks have surged in recent weeks after the end of the war with Iraq and an encouraging first-quarter earnings season. But analysts have cautioned that stocks likely will show declines on profit-taking unless investors see strong signs of an improving economy.

“I do think we will continue to see a trading-range environment” with the Dow moving up and down about 5 percent from current levels, said Mike Kayes, chief investment officer at Eastover Capital in Charlotte, N.C.

“Investors need to see evidence of a stronger economy, or we need a leadership sector to carry us into another bull phase,” he said.

Drug stocks were among the big losers yesterday after the Supreme Court ruled that Maine could begin a novel plan to force drug manufacturers to lower prices on prescription drugs. However, the court cautioned that the program might not survive future legal challenges.

Pfizer dropped $1.81 to $31.80, while Merck fell $2.80 to $56.65 and Johnson & Johnson declined $1.41 to $54.63.

Bristol-Myers Squibb lost $1.37 to $24.45 after the New York Times reported that a federal probe into the drug maker’s financial statements might be deeper than revealed.

Gainers included Genentech, which surged $16.95, or 44.7 percent, to $54.85, after the biotech company said its drug Avastin helped the survival of cancer patients in a Phase III trial.

Declining issues outnumbered advancers nearly 3-to-1 on the New York Stock Exchange. Consolidated volume was moderate at 1.73 billion shares, compared with 1.88 billion traded Friday.

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