Dow hits lowest level in 2000 during 2Q

national | miscellaneous | news report Thursday July 11, 2002 00:49 by WebSurfer

The Dow, losing 581 points in 3 days, closes below 8,900 for the first time since last fall. The Nasdaq sets a new low as well. After the bell, Yahoo! reports a profit.

Stocks post lowest close of year

The Dow, losing 581 points in 3 days, closes below 8,900 for the first time since last fall. The Nasdaq sets a new low as well. After the bell, Yahoo! reports a profit.

Hey, it's been worse. But not much worse.
The third day of big losses in a row left the Dow to close the day at 8,813, its worst close of the year. The big index dropped 282 points, bringing the week's total loss to 581 points. It's the first time the Dow closed below 9,000 since last October, when Sept. 11 was still fresh.

The Nasdaq also posted its lowest close of the year, ending at 1,346, a bit worse than the 1,357 close of last Tuesday. Last Friday's rally? All gone, and then some.

"We saw what I'd call indiscriminate selling. Selling picked up late in the day. We saw people selling stocks that have held up very well," CNBC's Bob Pisani said.

The day's blue-chip sell-off once again spared few stocks; only two of the Dow 30 managed gains, both by just pennies. For the week, only one Dow stock, McDonald's (MCD, news, msgs), shows any substantial gains -- and it has edged up only about 1%.

There was reason for some of it. General Motors (GM, news, msgs) fell more than 4% on an analyst downgrade. Johnson & Johnson (JNJ, news, msgs) lost about 5% on a downgrade, and Boeing (BA, news, msgs) lost about the same on news of a reorganization and union trouble.

But Alcoa (AA, news, msgs) dropped about 3% on no particular news; chip giant Intel (INTC, news, msgs), also for no obvious reason, lost almost 6%.

Things did look a bit brighter in some parts of the tech world today. Morgan Stanley upgraded network-storage company Brocade Communications (BRCD, news, msgs), while Merrill Lynch boosted both Cisco Systems (CSCO, news, msgs) and Extreme Networks (EXTR, news, msgs) to “strong buy.” Each gained more than 5%.

After the bell, Internet media star Yahoo! (YHOO, news, msgs) offered a glimmer of hope, reporting a second quarter profit of 3 cents per share. That's better that analysts expected, and the first profit in seven quarters. Shares ticked up a little after hours, but that's after a 4% loss during regular trading.

Redback Networks (RBAK, news, msgs), also after the bell, reported a narrower loss than in the same quarter last year, but with revenues down by a third.

Perhaps those numbers will help tomorrow. But with the Nasdaq and S&P 500 already mired below their post-Sept. 11 lows, we have to wonder if the Dow is headed there as well. Certainly, after more than 580 points lost over just three days, Dow 8,235 looks closer and closer.

You can't escape the books

One big problem: There's no escaping the market's accounting crisis.

Today, a watchdog group announced it has sued Vice President Dick Cheney and the company he used to run, Halliburton (HAL, news, msgs). The SEC is already looking into accounting practices the company adopted when Cheney was its top guy (and Arthur Andersen its auditor.)

Just yesterday the president tried to reassure the market and vowed to hold CEOs responsible. You just have to wonder if he also meant ex-CEOs…

Meanwhile, Qwest Communications (Q, news, msgs) confirms today that it faces a new criminal probe by the U.S. Attorney's office in Denver, as well as an ongoing SEC investigation. Shares fell more than 30%.

And then there's drug giant Merck (MRK, news, msgs), which today delayed for a third time the planned spinoff of Medco. Medco, of course, is the unit that got the blame for Merck's own cooked-books case. The pharmacy-benefits subsidiary recorded billions as revenue that it never actually received.

Shares of Medco, initially expected to bring in $24 per share, would have gone as low as $17 per share. That's potentially a lot of lost cash. The sale of 46.7 million Medco shares at $24 would have made Merck more than $1.1 billion. At $17, the take would be a mere $816 million. Then again, Dispatch has to wonder if a sharp accountant couldn't find some way to write off the difference . . .

This should improve international relations...

Seven foreign stocks find themselves deported, in a sense, this morning. Standard & Poor’s has decided that the S&P 500 should track large-cap U.S. companies and exclude overseas corporations that just happen to be listed on American exchanges.

Bye-bye, Royal Dutch Petroleum (RD, news, msgs), Unilever (UN, news, msgs), Nortel Networks (NT, news, msgs), Alcan (AL, news, msgs), Barrick Gold (ABX, news, msgs), Placer Dome (PDG, news, msgs) and Inco (N, news, msgs).

Hello, Goldman Sachs (GS, news, msgs), Prudential Financial (PRU, news, msgs), United Parcel Service (UPS, news, msgs), eBay (EBAY, news, msgs), Principal Financial Group (PFG, news, msgs), Electronic Arts (ERTS, news, msgs) and SunGard Data Systems (SDS, news, msgs).

Most of the outgoing stocks slid in European trading, while the soon-to-be-added names jumped. Inclusion in the S&P 500 is something of a meal ticket, a guarantee that the dozens (hundreds?) of mutual funds linked to the index will be forced to buy your shares. The changes don’t take effect until July 19, but by then, the arbitrage opportunity will be over. (It may already be over.)

The guy in charge of the S&P 500, Howard Silverblatt, says xenophobia has nothing to do with the index rejiggering. It’s just that over the years, hundreds of foreign companies have listed on the NYSE, and many of them have grown large enough to join the S&P 500. Silverblatt told news services that the index needed to be flushed of foreign names so as to reflect U.S. stock performance more closely.

By the way, another index, the venerable Dow Jones industrials, may be preparing an ouster of its own. The Financial Times reports that long-suffering AT&T (T, news, msgs) could be dropped soon.

Facing the angry mob

President Bush’s corporate-reform speech drew criticism from Democrats (of course) and even more neutral commentators. It featured mainly tough talk about ridding companies of bad-apple executives, but offered few details about how to prevent or detect that rot in the first place.

Tonight is the administration’s first chance to flesh out the plan. Treasury Secretary Paul O’Neill and Commerce Secretary Don Evans will take investors’ questions directly in a CNBC-hosted town hall meeting.

The show, hosted by Capital Report anchors Alan Murray and Tyler Mathisen, begins at 7 p.m. ET.

Meanwhile, if you’d rather take investing advice from someone other than your government, make sure you catch Power Lunch on Thursday. An Ernst & Young CFP will field questions on cobbling together a retirement plan in this tough investing climate.

-- CNBC on MSN Money