- The Washington Times - Wednesday, October 22, 2003

The stock market took a spill yesterday amid disappointing news from drug and tech stars Merck, Amazon.com and Amgen, with the Dow Jones Industrial Average tumbling nearly 150 points.

Word of a decline in profits at drug maker Merck, which said it would cut 4,400 jobs, and scaled-back earnings projections by tech companies played on investors’ fears that economic growth this past summer might not be producing the jobs and profits needed to sustain the recovery.

Contrarians on Wall Street say the market was due for a fall after a bull run that has added 30 percent to major indexes since the spring. But by historical standards — the month of October has delivered Dow drops of 500 points and 25 percent or more — yesterday’s tumble was mild and suggested that the year-old bull market will continue.

The Dow lost 149 points or 1.5 percent to close at 9,598. The broader gauges also fell sharply, with the Nasdaq Composite Index dropping 43 points or 2.2 percent to 1,898 and the Standard & Poor’s 500 index shedding 1.5 percent to close at 1,030.

“We are in the third week of October, and so far, so good,” said Ralph Acampora, Prudential’s chief technical analyst. He thinks the market is at the beginning of an enduring upward trend and can climb still higher, though the severe bear market that prevailed from March 2000 to October 2002 still has not been defeated definitively.

“The cyclical bull market is alive and well,” he said. “Breadth remains strong.”

But he added that “the easy money has been made,” and that investors will have to get more picky about choosing stocks.

Prudential is recommending stocks in consumer-oriented businesses, such as retailing, financial services, broadcasters and home-building, as well as stocks in industries that benefit from the cyclical upturn in the economy such as technology, manufacturing and materials.

Bears on Wall Street have been warning that October might bring a significant downturn, noting that many technology stocks that were the darlings of the 2000 technology boom have run up exorbitant prices once again.

Amazon.com, an Internet retailer whose stock plunged yesterday on projections of a shortcoming in earnings, was priced at a lofty 100 times its earnings potential, for example. The average U.S. stock, by contrast, sells for about 17.5 times its projected earnings.

Amazon.com beat analysts’ expectations by a penny a share, but it narrowed its earnings forecast for next year, causing its stock to plunge 9 percent to $54.03. Amgen’s stock tumbled 5 percent to $60.30, although it beat expectations by 2 cents a share and reversed a third-quarter loss on strong sales of an anemia treatment for cancer patients.

Merck, which missed analysts’ forecasts by 3 cents a share, declined 6.5 percent to $45.72. Other pharmaceutical companies reporting earnings yesterday also missed their forecasts and were punished with a stock drubbing, including Pfizer, Schering-Plough and Wyeth.

Disappointment with some overpriced stocks is natural, analysts said. But most of the companies that have reported third-quarter earnings so far this season have met or exceeded expectations. And the S&P; companies overall are expected to report earnings growth of 18.6 percent during the quarter — the fastest growth since the 2000 boom, according to Thomson First Call.

“Following on the heels of seven months of improvement in the equity market, many investors are growing concerned that stock prices now reflect an ideal combination of economic strength and robust corporate earnings,” said Steven B. Young, chief investment strategist at Banc of America Capital Management.

But he argued that the average stock price is not that expensive, and with economic growth and earnings both accelerating, there’s ample room for growth in good-performing stocks.

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