NEW YORK >> The summer of 2001 will likely be a bitter memory for investors who watched their already battered stock portfolios sink yet again as hopes of a business turnaround evaporated. September warnings
may fuel more sellingInvestors are uneasy as firms prepare
to deliver third-quarter previewsBy Lisa Singhania
Associated PressUnfortunately, the market's plunge this past week, including a 503-point drop in the Dow Jones industrials over four days, suggests an increasingly bleak prognosis for September and perhaps beyond.
"I think there's less optimism now among investors than there was earlier this summer," said Matt Brown, head of equity management at Wilmington Trust. "Everyone has been hoping that this week will be the week it gets better, and if not then, the next week, but it's not happening."
Indeed, this past week's selling was triggered by a spate of discouraging economic and corporate news. Two economic reports -- one Tuesday from the Conference Board, the other Thursday from the Commerce Department -- suggested consumer confidence and spending, which accounts for two-thirds of the economy, are weakening. Another report Wednesday, also from the Commerce Department, showed economic growth during the second quarter at the most anemic level in eight years.
Meanwhile, Sun Microsystems and Advanced Micro Devices issued revenue warnings for the current quarter, citing softening demand for their products. And Gateway and Corning announced significant job cuts because of sluggish business. The result: By Thursday, the Dow and Nasdaq composite index had recorded their lowest closes since April 9. The Dow's four-day slide sliced 4.8 percent from its value, while the Nasdaq tumbled 125 points or 6.5 percent. The selling eased yesterday, partly on an expected rebound, but also because of a government report showing orders to U.S. factories inched up in July.
Still, the respite stopped short of a rally. Analysts blamed low volume ahead of the Labor Day holiday and also investors' growing exasperation. After months of watching rallies fizzle, many investors have stopped buying in a market that has so far defied prediction. Even technology stocks, responsible for much of the bull market of the late 1990s, have lost their appeal.
"I think people don't feel any pressure to do anything now, to buy any stocks," said Brown, the Wilmington Trust adviser.
"They realize that in time the market will turn and will probably turn abruptly upward. But the question is, will it be next week or the end of the year? No one knows. And a lot of investors aren't willing to guess."
What concerns analysts is that the bad news isn't over. With the third quarter ending next month, September is likely to bring a series of predictions from companies that their results will be disappointing.
"The earnings warnings will start once we get into September," said Bryan Piskorowksi of Prudential Securities. "What will be key is how we react to those warnings. If we sell off again, that will be an indication that there are still a lot of problems in the market."
If this year's record is any guide, the market likely will respond badly. Earnings warnings in the first and second quarters led to broad selloffs, with the technology sector hit especially hard. Since Jan. 1, the Dow has lost nearly 8 percent, the Nasdaq composite index tumbled about 27 percent and the Standard & Poor's 500 index dropped 14 percent. The primary catalysts for the year's advances have been interest-rate reductions by the Federal Reserve, which has made seven such moves this year. But with little sign that economic growth is reviving, investors have become less enamored with interest rates and continue to wait for concrete signs that business is improving.
The Dow finished the week down 473.42, or 4.5 percent, at 9,949.75, despite climbing 30.17 yesterday. The Nasdaq lost 111.37, or 5.8 percent, to 1,805.43 for the week after advancing 13.75 yesterday. For the week, the Standard & Poor's 500 index fell 51.35, a decline of 4.3 percent, to 1,133.58. The index rose 4.55 yesterday.