Last Update: 5:32 PM ET July 19, 2002


NEW YORK (CBS.MW) -- The Dow suffered a devastating 4.6 percent loss on heavy volume Friday, tumbling below its post Sept. 11 low to levels not seen since September 1998 in its ninth down day over the past ten. The blue-chip barometer has fallen over 13 percent since the start of the month.




All of the Dow's 30 stocks ended deep in the red as the index saw its worst percentage decline since Sept. 17. The Nasdaq crumbled 2.8 percent to its lowest finish since April 1997 and the S&P 500 skidded 3.8 percent to its lowest close since May 1997.




"The market is very emotional and there's lots of panic selling. We're now seeing irrational depression," remarked Peter Cardillo, chief investment strategist with Global Partners Securities.




Shoddy outlooks from the likes of Ericsson and Sun Microsystems dogged the tech sector right from the start while the drug group was knocked on news of a federal probe into one of Johnson & Johnson's factories.




Amid the sea of red ink, only the defensive gold sector rose to the occasion, rallying as gold futures for August delivery raced up nearly $7.




The Dow Jones Industrial Average ($INDU: news, chart, profile) tumbled 390.23 points, or 4.6 percent, to 8,019.26, bogged down by J&J, Exxon Mobil, Walt Disney, Procter & Gamble, 3M, Coca-Cola and DuPont.




Investors overlooked another favorable economic stat revealing tame inflation on the retail side while the latest trade data unveiled a budding deficit.




Merrill Lynch economists lowered their second-quarter GDP estimates to 2.5 percent from 3.5 percent, noting that the burgeoning trade deficit alone takes off about 1.5 percent from quarterly economic growth. While the brokerage maintained its full-year forecasts, it acknowledged that it'll have to take into account how the negative wealth effect may impact the economy.




The Nasdaq Composite ($COMPQ: news, chart, profile) skidded 37.80 points, or 2.8 percent, to 1,319.15 and the Nasdaq 100 Index ($NDX: news, chart, profile) slid 29.16 points, or 2.9 percent, to 965.45.




The Standard & Poor's 500 Index ($SPX: news, chart, profile) wavered 3.8 percent while the Russell 2000 Index ($RUT: news, chart, profile) of small-capitalization stocks slumped 2.6 percent.




Checking the pulse of the market's sectors, Internet and hardware shares took the deepest plunge in the tech sector.




Microsoft headed lower despite unfurling better-than-expected quarterly results as investors keyed in on the company's cautious outlook. And AOL Time Warner hit the skids after announcing a high-profile management reshuffling.




In the broader market, only gold issues eked out gains while drug, oil, airline, consumer, defense and utility stocks logged the most pronounced losses. Check market stats and latest sector performance.




Volume was heavy at 2.5 billion on the NYSE and at 2.37 billion on the Nasdaq Stock Market. Market breadth was horrific, with decliners trampling advancers by 25 to 8 on the NYSE and by 25 to 10 on the Nasdaq.




On the fund flow front, Trim Tabs estimated that all equity funds had outflows of $19.3 billion over the week ending July 17 compared with outflows of $6.3 billion during the prior week.




And equity funds that invest primarily in U.S. stocks had outflows of $18.4 billion vs. outflows of $5.9 billion during the prior week. Finally, bond funds had inflows of $3.9 billion compared with inflows of $1.6 billion during the previous week.




No help from earnings season




Though the second-quarter earnings season has so far been better vs. analysts' expectations, investors have been discouraged by the cloudy and at times outright negative pictures offered by many companies.




Thomson Financial/First Call notes that of the 205 S&P 500 companies that reported through Thursday evening, 59 percent beat Wall Street's earnings expectations, 28 percent matched projections and only 12 percent fell short of consensus targets.




Goldman Sachs said an early read on the earnings season is revealing a more subdued second-half for technology companies. Goldman points out that third-quarter outlooks have been almost uniformly cautious, indicating that tech providers are not seeing an improvement in corporate spending while the consumer remains a wildcard.




Robert Dickey, technical strategist at RBC Dain Rauscher, said the reporting season at hand is creating extra short-term risk for stockholders.




"Although more companies are reporting upside surprises in their reports, the price reactions on these stocks have been minor. However, the negative reaction to earnings misses has been dramatic."




J&J dives; Merck and Pharmacia slip




Dow stock J&J (JNJ: news, chart, profile) slid 15.8 percent after confirming that the government was conducting an investigation into one of the drug behemoth's factories in Puerto Rico that manufactures the anemia drug Eprex. The drug has recently been linked to a string of sicknesses in Europe and Canada. See full story.









Merrill Lynch downgraded J&J to an intermediate-term "buy" from a "strong buy." Commenting on the criminal investigation into the drug giant, Merrill said that while it expected little, if anything, to stem from the probe, it also conceded that J&J may be vulnerable since it still commands a 20-percent premium to the S&P 500.




Dow component Merck (MRK: news, chart, profile) closed down 1.2 percent after rising for most if the trading day after reporting in-line second-quarter earnings and signaling that it was comfortable with Wall Street's third-quarter estimates. See the story.




In other news in the drug sector, Pharmacia Corp. (PHA: news, chart, profile) backed its second-quarter earnings estimate for its pharmaceutical business and also reaffirmed full-year profit expectations. On Monday, Pfizer announced it was nabbing Pharmacia in an all-stock deal valued at $60 billion. Pharmacia shares fell 3.8 percent and Pfizer eased 4.1 percent.




Microsoft declines; Sun craters




Microsoft (MSFT: news, chart, profile) exceeded Wall Street's expectations with its fiscal fourth-quarter results late Thursday thanks to stronger-than-expected desktop and server software revenue. For fiscal 2003, Microsoft projects a profit in the range of $1.85 to $1.91 a share, less than the $1.92 a share that had been anticipated by analysts. Shares ended down 3 percent. See the story.




Among other software issues, PeopleSoft (PSFT: news, chart, profile) rallied 12.5 percent after posting late Thursday better-than-expected earnings from operations. Check the story.









Sun Microsystems (SUNW: news, chart, profile) took a 26.7-percent nosedive after lowering its outlook for its fiscal first quarter. In the meantime, the server giant posted late Thursday a fiscal fourth-quarter profit from operations in line with expectations. See the full story. CS First Boston downgraded Sun Micro to a "hold" rating from a "buy" on the heels of the news.




Ericsson (ERICY: news, chart, profile) became the latest telecom company to lower handset sale forecasts for the year while announcing plans for 5,000 job cuts. On Thursday, fellow cell phone maker Nokia also offered a sobering outlook for the year. Check the story. Additionally, Ericsson said its $3.3 billion rights offering would be sold at a discount of over 70 percent to Thursday's closing price. Check story. Ericsson plunged 17.1 percent and Nokia erased 5.2 percent.




Beleaguered WorldCom (WCOME: news, chart, profile) could file for Chapter 11 bankruptcy protection as soon as Monday, according to a report in the Wall Street Journal. Shares ended flat after plunging early on. See the story.









AOL Time Warner (AOL: news, chart, profile) slid 7 percent after announcing late Thursday the resignation of Chief Operating Officer Bob Pittman. See story.




Checking other Net stocks, EBay (EBAY: news, chart, profile) fell 1.5 percent as investors expressed disappointment with the company's revenue outlook for the third quarter, even as its earnings goal was in line with Wall Street's targets. Check the story.




Canada's Nortel Networks (NT: news, chart, profile) recorded a second-quarter loss that matched the Wall Street estimate. Going forward, Nortel said it expects flat third-quarter sales and a narrower operating loss. Shares dropped 8.4 percent. See the story.




Goldman Sachs lowered its view on a slew of chip communications companies. Vitesse Semi (VTSS: news, chart, profile) and Applied Micro Circuits (AMCC: news, chart, profile) were cut to a "market performer" from a "market outperformer" while PMC-Sierra (PMCS: news, chart, profile) was trimmed to a "market outperformer" and removed from the U.S. Recommended List. After the close Thursday, Vitesse reported an in-line fiscal third-quarter loss from operations while PMC-Sierra's second-quarter loss was slightly narrower than the Wall Street consensus view. Vitesse lost 19.5 percent while PMC-Sierra gained 6.7 percent and AMCC closed at flat levels.




And Broadcom (BRCM: news, chart, profile) climbed 4.5 percent after checking in late Thursday with a slimmer second-quarter loss compared with expectations.









In the storage space, QLogic (QLGC: news, chart, profile) slipped 1.3 percent after posting better-than-expected fiscal first-quarter results late Thursday while McData (MCDT: news, chart, profile) was up an eye-popping 18.4 percent after recording second-quarter results that were well above expectations. Merrill Lynch upped McData to an intermediate-term "buy" from a "neutral" while Deutsche Bank Securities lifted it to a "buy" from a "market perform."




Read Movers & Shakers for the latest individual stock action and news.




Treasurys rally




Government bonds gained considerable ground for a second session as safe-haven seekers bid up the fixed-income sector.




The 10-year Treasury note put on 20/32 to yield ($TNX: news, chart, profile) 4.53 percent while the 30-year government bond piled on 1 6/32 to yield ($TYX: news, chart, profile) 5.33 percent.




Data watchers had plenty of news to sift through on Friday.




Inflation remains a non-threat as the overall and core consumer price index were both up just 0.1 percent in June, less than the 0.2 percent rate of increase that had been projected by economists. The core CPI excludes the jumpy food and energy components. See the story.




"For now, the Fed has little to worry about. Inflation is not an issue and the economic rebound is not strong enough to cause the FOMC to fear that a surge in prices is right around the corner," commented Joel Naroff, chief economist at Naroff Economic Advisors.




The trade figures, meanwhile, revealed a $37.64 deficit in May, more than the $35.5 billion that had been anticipated. See full story and check economic calendar and forecasts.




The dollar headed lower after a mid-week respite, falling 0.5 percent to 115.81 yen -- its lowest level since February 2001. The euro, meanwhile, edged up 0.1 percent to $1.012.