A Bad Finish to a Worse Year
With a spiral that sharpened in the final hours of trading, the year 2000 ended with the major indexes suffering yet another day of painful losses. The Nasdaq Composite Index, the benchmark for the technology industry that newbie investors once thought would never go down, suffered the worst year in its 29-year history.
Today, the Nasdaq plunged 87.24, or 3.4%, to 2470.52, a 39.3% decline for the year. "It was a tough tech day in a tough tech year," said Larry Wachtel, Prudential Securities analyst.
Like the nation's retailers, who offered steep discounts this season, the Nasdaq is now selling at a 51% discount to its lofty peak on March 10. Until today, the Nasdaq's worst annual decline was 35.11%, suffered during the oil crisis of 1974.
The Dow Jones Industrial Average lost 81.91, or 0.75%, to 10786.85. The Standard & Poor's 500 Index lost 13.94 to 1320.28.The Dow and the S&P 500 haven't done this poorly since the 1981 recession. The Dow fell 6.2% for the year, and the S&P lost 10.1%.
The losses were particularly disappointing as the market has shown some signs of life lately ??mini Santa Claus rally that lifted the Dow and S&P for five-straight days and the Nasdaq for two. This morning started with a modest rally on light volume, but early gains in the technology sector suddenly dissipated as investors quickly locked in gains, or did one last round of tax-loss selling.
Consumer-cyclical stocks ??e first beneficiaries if the Federal Reserve comes through with long-desired interest rate cuts ??d see some buying today. Retailers were the strongest, as customers of Montgomery Ward ??ich went bankrupt last night ??ll now have to shop elsewhere. On the Dow, Home Depot (HD) and Wal-Mart (WMT) both gained.
Dampening any nascent optimism for an early January rally was a cautionary assessment of the economy today from the combined research machine of J.P. Morgan-Chase, which finalizes its merger today. The first joint market call from the new company's economist, Bruce Kasman, was a warning that the U.S. economy is headed for a hard landing ?? often-used but basically undefinable term. Kasman sees the gross domestic product rising just 1.8% next year and at an annualized rate of under 1% for the first six months.
"A powerful set of forces are weighing on corporate earnings and are reducing risk appetite in the economy," Kasman wrote. He cited cutbacks in corporate capital-equipment spending, weak demand from overseas partly due to the strong dollar and slowing consumer demand as declining stock portfolios have made people feel poorer.
But what about the famed January effect, when investors put money they've taken out of the market back to work?
Wachtel doesn't expect any such rally to last more than a couple of days. "That doesn't have anything to do with interest rates or earnings."
For those wishful thinkers who believe the Federal Reserve will cut interest rates before their next policy meeting on Jan. 30, that's merely a fantasy of people who want "drama immediately," said Wachtel.
With all the pain in the tech world, it's easy to ignore the sectors where some big money was made. The names are familiar. The Dow Jones Utility Average gained 45% for the year and closed near an all-time high. Other sectors looked just as good or better: biotechs, up 74%, drugs up 31%, and oil up 10.5%. And Philip Morris (MO) ??ce the scourge of plaintiffs lawyers and the butt of much selling on Wall Street ??ined a massive 87%.
Our Map of the Market has an interactive one-page overview of 600 stocks and links to company data and analysis.
Bonds had a relatively uneventful day and yields were mixed. The yield on the 10-year note was 5.10% vs. 5.11% late yesterday. The 30-year bond yielded 5.46% vs. 5.43% yesterday.
SmartMoney.com Stocks to Watch
Discounter Costco Wholesale (COST) popped 3% to $39.94 and led retailers higher as a reward for vanquishing rivals Montgomery Ward and Bradlees (BRADQ). Yesterday, Montgomery Ward, a 128-year-old retailer, and long-time laggard, said it will go bankrupt and liquidate, putting about 28,000 people out of work. On Tuesday, Bradlees said it was closing all 105 stores, putting another 10,000 people in the unemployment line.
GE Capital, the financing unit of General Electric (GE), bought Ward in 1997 after its last bout with bankruptcy, but a turnaround effort hasn't worked, as Ward lost out to faster-moving discounters like Wal-Mart (WMT), Target (TGT) and Costco. The slow holiday-shopping traffic that plagued other stores dealt the final blow. GE Capital insisted the bankruptcy wouldn't affect its profits, and stock of parent GE lost 1% to $47.94. Wal-Mart and Target gained fractionally.
The founder of former Internet darling Priceline.com (PCLN) is probably wishing he could follow pitchman William Shatner, who has already yelled "beam me up, Scotty," from the disaster of this Web discounter. Jay Walker is stepping down from Priceline's board of directors to concentrate full-time on his business-to-business incubator, Walker Digital. With an enormous cash-burn rate and the failure of its gasoline and groceries businesses, the one thing people couldn't get a low enough price for was the stock of Priceline.com, which saw 99% of its value disintegrate. After some volatile ups and downs today, the stock finished flat at $1.31.
You've got problems! America Online (AOL) fell 1% to $34.80 after The Wall Street Journal reported more complications over its merger with Time Warner (TWX). Competitors were lobbying the Federal Communications Commission to force the companies to open up AOL's next generation of instant messaging on the Internet to competitors like Yahoo! (YHOO) and MSN, Microsoft's (MSFT) Internet service. Time Warner lost 2% to $52.24.
Tyson Foods (TSN) is raising the stakes in its pursuit of beef processor IBP (IBP). The company said last night it would up its offer by a buck to $27 a share. Smithfield Foods (SFD), a Tyson competitor, and a group spearheaded by investment bank Donaldson Lufkin & Jenrette have also made bids to purchase IBP. IBP gained 3% to $26.75. Tyson was flat.
Semiconductor-equipment maker Nanometrics (NANO) sank 19% to $13.81 after forecasting quarterly revenues about 11% below estimates, blaming a shipment rescheduling by a large customer in Korea late in the quarter that resulted in a mismatch of available material.
Information Holdings (IHI), a provider of databases on patents and trademarks to academics and tech professionals, said strong sales and lower costs will allow it to earn 10 cents to 12 cents a share in the fourth quarter, nearly double estimates. The stock jumped 8% to $23.43.
Credit company Providian Financial (PVN) will pay $105 million to settle suits that accused it of violating consumer-protection laws, in part by marketing "add-on" services such as movie coupons without explaining price obligations to consumers. The stock rose 9% to $57.50.
Synthetic-chemical makers traded sharply higher after Goldman Sachs talked up the sector's prospects for higher prices and volume. Analyst Avi Nash also noted the stocks have low valuations and could trade up with other cyclicals which rise on hopes for lower interest rates. Millennium Chemicals (MCH), Georgia Gulf (GGC), PolyOne (POL) and Lyondell Chemical (LYO) all jumped substantially, with PolyOne leading the pack with a 9% climb
