More crushing losses for stocks


Telecoms slide after BLS warning, WorldCom filing





By Julie Rannazzisi, CBS.MarketWatch.com


Last Update: 4:30 PM ET July 22, 2002













NEW YORK (CBS.MW) -- The Dow ended with devastating losses for a third straight session Monday as hemorrhaging in financial and telecom stocks took the blue-chip index to its lowest close since the financial crisis in October 1998. The Nasdaq and S&P 500 plunged to levels not seen since May 1997.




A warning from BellSouth and WorldCom's bankruptcy filing smacked carriers like SBC Communications while a somber outlook from American Express and mammoth losses in Citi and J.P. Morgan following questions over their role in the Enron fiasco kept blue-chip buyers cautious.




Adding weight to an already encumbered market were lowered targets for the stock averages from Banc of America and Lehman Bros., though other strategists claimed that stock valuations looked compelling at current levels.




"We're just seeing more of the same, with more gas being thrown on the fire. Nobody is stepping up even though valuations are getting stretched on the downside. There's absolutely no bounce back, just more haze and malaise," said Bryan Piskorowski, market commentator at Prudential Securities.




"The problem is that there's no quick fix for this market. The only thing it has going for it now is that it's oversold," the strategist claimed.




The Dow Jones Industrial Average ($INDU: news, chart, profile) surrendered 234.68 points, or 2.9 percent, to 7,784.58 after rising as much as 84 points and falling as much as 302 points during a whippy session. SBC Communications, Citigroup, Alcoa, American Express, Exxon Mobil and Microsoft took the biggest blows while Procter & Gamble, Coca-Cola, Philip Morris and Johnson & Johnson escaped the selling.




David Solin, partner at Foreign Exchange Analytics, said that while the market is "very oversold," there are still "no signs of an impending bottom."




"It's still way too risky to buy," he said, urging investors to wait for better signs that a bottom has formed. "You won't buy the low, but risk in the trade will be much smaller."




The Nasdaq Composite ($COMPQ: news, chart, profile) eased 36.53 points, or 2.8 percent, to 1,282.62 and the Nasdaq 100 Index ($NDX: news, chart, profile) descended 26.39 points, or 2.7 percent, to 939.06.




Most sectors were awash in red, with oil service issues bogged down by dour news from Halliburton. Brokerage, natural gas, gold and industrial issues also got creamed. Within technology, the heaviest losses showed up in the hardware and networking areas. Check market stats and latest sector performance.




The Standard & Poor's 500 Index ($SPX: news, chart, profile) sagged 3.3 percent while the Russell 2000 Index ($RUT: news, chart, profile) of small-capitalization stocks dropped 1.7 percent.




Volume was very heavy at 2.14 billion on the NYSE and at 2.35 billion on the Nasdaq Stock Market. Market breadth remained brutally negative, with losers squashing winners by 26 to 6 on the NYSE and by 24 to 11 on the Nasdaq.




Separately, UBS Warburg and the Gallup Organization said investor optimism sank to an all-time low in July, with the Index of Investor Optimism down to 46 from 72 in June. Additionally, only 32 percent of investors surveyed in July said they were optimistic about the prospects for the financial markets over the next year -- down from 38 percent in June. See the full story.




Read After Hours for the latest trading after the closing bell.




Lehman, B of A lower targets; Cohen: "stocks cheap"




Jeffrey Applegate, strategist at Lehman Brothers, took the hatchet to his year-end targets on the S&P 500 and Dow. For the broader S&P, the strategist moved to 1,075 from 1,200 while the Dow's target now stands at 10,750 from 11,500.




Applegate also shaved his S&P 500 earnings-per-share targets while maintaining his asset allocation at 80 percent stocks, 10 percent bonds and 10 percent cash.




And Banc of America Securities' Thomas McManus sliced his 12-month target for the S&P 500 to 1,000 from 1,150 while lowering the Dow's to 9,400 from 10,400 and to 1,650 for the Nasdaq from the prior 2,250.




"The persistence of the market's downturn is surprising, especially in the face of sharply lower treasury yields. We expect to be committing more of our reserves to the market soon," he told clients in a research note.




Goldman Sachs' chief investment strategist Abby Joseph Cohen said a close review of assets and liabilities in the equity market outlook leads her to believe that stocks are "priced too cheaply."




On the side of the assets: the strong underlying structure of the economy; recovery from inventory excesses; mild inflation; and sound Fed policy. The liabilities that investors are keying in on include: questions on corporate accounting; the wealth effect impact on consumers and corporations; the weaker dollar; and the role of momentum strategies, which often cause the pendulum to swing too far in one direction.




"It is obvious that investor's risk aversion is now at extremely high levels. From a mathematical standpoint, risk aversion, rather than the fundamental inputs, is now driving share prices," she told clients in a research note.




Corporate liquidity climbs




Trim Tabs estimated that equity funds had $15.6 billion in redemptions over the five days ending last Thursday and $18.4 billion in the week ending last Wednesday. The latter was the second biggest 5-day outflow since the week ended Sept. 25.




But Trim Tabs notes that a recent surge in stock buyback announcements from corporations has produced a bullish net change in the trading float of shares. The new offering calendar has also been contained, limiting the amount of new shares that have had to be absorbed by the market.




Trim Tabs said the one missing piece of the puzzle that would turn corporate liquidity wildly bullish is a pickup in new cash takeovers.




Trim Tabs shifted its view to "cautiously bullish" from "neutral" due to the newfound bullishness among corporate investors. Additionally, U.S. equity fund flows at extremes have been very successful contrary indicators, the firm noted. The fund flow tracker also points to bearish sentiment readings, another good contrary indicator.




Salomon Smith Barney economist Steven Wieting said stocks may be in an "emotional blow-off phase." But even as momentum is ruling the markets, he believes the key to future returns will depend on the economy's performance through the shock.




"Stocks will no doubt be a wet blanket on [the] economic recovery. However, fundamentals suggest it won't extinguish the fire entirely. Unlike Japan, economic adjustments have been made swiftly in the U.S. If earnings are stable or higher going forward, much more attractive valuations will be evident," the economist said.




WorldCom rises; SBC, BellSouth tumble




WorldCom (WCOME: news, chart, profile) rose 55.6 percent to 14 cents after filing for Chapter 11 protection, marking the largest bankruptcy in U.S. history. See the story. The telecom company said it secured a commitment of $750 million of the $2 billion debtor-in-possession financing that it would receive, which will allow it to continue to operate during the Chapter 11 proceedings. Read the related story.




Among other telecom companies, Dow stocks SBC Communications and AT&T slid 10.2 percent and 4 percent, respectively. And Sprint declined 4.6 percent while Verizon gave up 11.8 percent. Merrill Lynch lowered its rating on SBC to a "long-term "neutral" from a "buy."









And BellSouth (BLS: news, chart, profile) tumbled 18.1 percent after posting second-quarter earnings that missed the Wall Street consensus target due to bad debt expenses and continued weak demand for its services. The carrier also projected a 2002 profit that was well below analysts' current targets. Merrill lowered the carrier to a long-term "neutral" rating from a "buy." See the story.




Financials tank; 3M up after earnings; P&G climbs




Many financial issues took a beating. Dow component Citigroup (C: news, chart, profile) was among the hardest hit with an 11-percent loss amid increasing questions over its role in the Enron debacle.









The Washington Post reported Monday that Enron raised over $5 billion from Citi, J.P. Morgan Chase (JPM: news, chart, profile) and other financial institutions using transactions that were labeled as energy trades. See full story.




Fellow Dow components J.P. Morgan and American Express lost 6.1 percent and 8.5 percent, respectively. AmEx posted a second-quarter profit that topped Wall Street's expectations, though it said it would no exceed Wall Street's current targets in 2002.




On a positive note, Dow stock 3M (MMM: news, chart, profile) edged up 0.1 percent after posting second-quarter earnings that surpassed analysts' expectations while also upping its full-year targets. Check the story.




UBS Warburg upgraded its ratings on a slew of household product companies: Dow stock Procter & Gamble (PG: news, chart, profile) was upped to a "strong buy" from a "buy," Gillette (G: news, chart, profile) was lifted to a "strong buy" from a "hold" while Alberto Culver (ACVA: news, chart, profile) and Clorox (CLX: news, chart, profile) were both upped to a "buy" from a "hold." The firm also nudged up its recommended sector weighting to an "overweight" from a "market weight" on belief that recent price declines have rendered valuations compelling while the sector's fundamentals remain intact.




Among the mentioned stocks, P&G added 4.5 percent, Gillette 4.4 percent and Clorox 5.4 percent. Separately, P&G announced Monday that it would increase the level of stock buybacks in 2002 and 2003, telling investors that it remained confident in its business.




UBS also upped its rating on Ford Motor (F: news, chart, profile) to a "hold" from a "reduce" on belief that at current prices, the stock discounts a substantial portion of concerns surrounding its prospects. Still, Warburg said it believes risks remain "weighted to the downside." Shares of the automaker slid 1 percent.









Finally, Warburg lifted its view on Anheuser-Busch (BUD: news, chart, profile) to a "buy" from a "hold" on belief that pricing and sales remain strong, pushing shares 3.8 percent higher. Check the story.




In the brokerage group, Merrill Lynch (MER: news, chart, profile) lost 3.3 percent. The company announced Monday that its chairman and CEO David Komansky would step aside and be replaced by current president and COO Stanley O'Neal. O'Neal will assume CEO duties in December 2002.




Dow company Walt Disney (DIS: news, chart, profile) erased a lofty 4.4 percent even after receiving an upgrade from A.G. Edwards to a "buy" rating from a "hold."




Dow component Boeing (BA: news, chart, profile) wilted 3.5 percent. The aerospace behemoth said it was starting to see subsiding order cancellations for its commercial jets. See London Calling.




Amgen (AMGN: news, chart, profile) shed 0.5 percent, erasing earlier gains that came after telling investors that it won regulatory clearance to market anti-anemia drug Aranesp for use in treating cancer patients. See biotech sector story.




Williams Cos. (WMB: news, chart, profile) tanked 61 percent after the energy merchant projected a loss in its second-quarter vs. Wall Street's expectations for a profit, blaming its struggling marketing and trading business. Merrill followed with a downgrade to a "neutral" from a "strong buy." See the article.




Halliburton (HAL: news, chart, profile) tanked 13.7 percent after telling investors that second-quarter charges related to probable future asbestos claims would be "substantial." Check the report.




Read Movers & Shakers for the latest individual stock action.




Treasurys resume ascent




Treasury securities changed hands at higher levels after a tentative start as fixed-income investors bid up prices on the back of hemorrhaging in the equity market.




The 10-year Treasury note gained 15/32 to yield ($TNX: news, chart, profile) 4.455 percent while the 30-year government bond was up 18/32 to yield ($TYX: news, chart, profile) 5.285 percent.




No economic news is on tap until Thursday, when new and existing home sales figures will be released in addition to durable goods orders and the second-quarter employment cost index. Check economic calendar and forecasts.




The dollar held its own against both the yen and the euro after following stocks on the downside Friday. The dollar gained 0.6 percent to 116.51 yen while the euro edged down 0.3 percent to $1.0065.




Julie Rannazzisi is markets editor for CBS.MarketWatch.com in New York