More woes for techs
cast cloud over Nasdaq

Warnings by Ciena and Dell
overshadow the Fed's looming rate cut

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By Lisa Singhania
Associated Press

NEW YORK >> Hopes for a tech turnaround suffered another blow this past week when Ciena Inc. and Dell Computer Corp. became the latest sector bellwethers to report weak results and pessimistic forecasts.

The wave of bad news, which came as the Nasdaq composite index hit lows not seen since April, only exacerbated Wall Street's already sour mood after months of stock hemorrhaging. Even Tuesday's expected interest rate cut by the Federal Reserve is unlikely to cheer investors fed-up by a market that can't seem to advance.

"We're grappling with the fact that 2001 is a write-off. Now we're setting our sights on 2002, but the longer the recovery gets put off, the more nervous Wall Street becomes," said John Forelli, portfolio manager for the John Hancock Core Value Fund. "In the meantime, investors are beginning to fear that consumers might pull back and that the next step for the economy is down."

Specifically, Ciena warned Thursday that it would miss earnings and revenue forecasts for its fourth quarter and fiscal 2002 because of a slowdown in spending in telecommunications carriers. The optical network equipment maker's warning came after it beat third-quarter expectations, despite a nearly 80 percent drop in profits. The same day, Dell Computer met second-quarter expectations, but said its third-quarter results would likely fall short of Wall Street's estimates because of soft demand and falling prices.

But analysts hesitated to blame Ciena or Dell for the market's weakness, even though both stocks ended the week lower. They contend the problem is the lack of indications that earnings are going to improve, rather than worries about individual companies' performance.

Indeed, the market managed to advance slightly Thursday. Widespread selling didn't commence until yesterday when Ford Motor Co. announced 5,000 job cuts and that its full-year earnings will fall short of analysts' expectations.

The news, combined with the Dell earnings warning, pushed the Dow Jones industrial average down more than 200 points at one point and the Nasdaq composite index to a new four-month low.

Investors also have been disheartened by the number and magnitude of similar announcements coming from outside the technology sector, all reminders of how widespread the economic malaise is. This week alone, a handful of retailers -- including Gap, Tiffany and Wal-Mart -- reduced their forecasts for future quarters.

"This is what the dissolution of hope looks like and the trading pattern we've been seeing is beautifully emblematic of it," said Chris Wolfe, equity market strategist for J.P. Morgan Private Bank. "The market goes up and people think maybe we're too high and things get crushed. Then people get hopeful again, and it starts over."

He doubts the Nasdaq will test its April 4 low of 1,638.80, unless the economic data begins to show consumers aren't spending, something which so far hasn't happened. But he said the earnings revisions this week were still unnerving because they mean a second-half turnaround for 2001 is all but impossible -- pushing the timeline for a recovery into 2002.

"If you miss the third quarter, you don't just miss the quarter, you miss the whole year," he said. "Companies can't make up three quarters of weakness in the fourth quarter."

The Fed is expected to lower interest rates by a quarter percentage point at its meeting next week -- its seventh rate cut this year -- but analysts are doubtful such a move will do much for stocks.

Although a bigger-than-expected cut might temporarily boost stocks, such a move could also intensify fears that the Fed knows something investors don't, and the economy is in worse shape than thought.

"A rate cut is definitely a bigger deal on the psychological front," said Brian Belski, fundamental market strategist at US Bancorp Piper Jaffray. "I do think investors have learned that trying to buy stocks on rate cuts doesn't work. Twice, in January and in April, the market has rallied when the Fed cut rates unexpectedly, and those rallies haven't lasted."

He said individual investors have come to the conclusion that rate cuts are good, but not enough of a reason to start buying stocks again. He believes they're waiting for businesses to say that conditions appear to be stabilizing and that activity is picking back up again -- a viewed shared by many other analysts.

"The market is waiting to hear businesses say things like, 'We've noticed a bottom in our business' or 'Our orders are starting to pick up,"' Forelli said. "Those are the kind of sound bites the market needs to hear before stocks go up and stay up."

The selling added up to a tough week on Wall Street.

The tech-focused Nasdaq ended the week down 89.46 points, or 4.6 percent, after falling 63.31 yesterday to 1,867.01, its lowest close since April 10. The Dow Jones industrials lost 175.47, or 1.7 percent, to 10,240.78 for the week, after dropping 151.74 yesterday. The Standard & Poor's 500 index fell 19.69 yesterday to 1,161.97, ending the week off 2.4 percent, or 28.19 points. The Russell 2000 index, which tracks the performance of smaller company stocks, lost 6.03 to 475.65 yesterday, falling 0.13 or 0.03 percent for the week.