Wall St. stocks take a reality pill

By Kim Khan
CNN/Money Staff Writer

NEW YORK (CNN/Money) -- Stock markets suffered a sharp turnaround Tuesday as weakness in the drug sector overcame an ephemeral telecom-inspired rally, bringing the Dow and Nasdaq to their lowest points in more than seven months.

The Dow Jones industrial average tumbled 128.14 lower to 9,517.26, its lowest point since Nov. 5, 2001. The blue-chip indicator was up as much as 113 points earlier in the session. The Nasdaq composite index fell 33.51 to 1,497.18, its lowest point since Oct. 2, 2001. The Standard & Poor's 500 index slid 17.14 to close at 1,013.60, its lowest mark since September 26, 2001.

"There's no excitement right now in this market," said Bob McCooey, New York Stock Exchange member with the Griswold Company. "There's no reason for people to come in to really want to buy the market. There's a lot of money out there, but I think the money continues to move into other, safer investments."

I think it's that uncertainty thing hanging over the market, be it political uncertainty, economic uncertainty or corporate uncertainty," Patrick Boyle, head financial trader at Credit Suisse First Boston, told CNNfn's Street Sweep. "Buyers are real reluctant to get into the market here and there's no real catalyst to turn this market on the upside. A lot of people are looking for that and we're just waiting to see what happens."

Stocks started the day higher, spurred on by Nokia (NOK: up $0.55 to $12.55, Research, Estimates) affirming earnings targets, but drug stocks hurt the markets, with bad news coming from a host of companies, including Dow-component Merck (MRK: down $2.42 to $51.88, Research, Estimates).

"The little bear-market rally we saw earlier and yesterday just ran out of buyers," said Timothy Ghriskey, president of Ghriskey Capital Partners.

Tensions also continued in the Middle East, weighing on the markets. A suicide bomber who asked for a glass of water set off a blast Tuesday in a restaurant in the Israeli town of Herzliya, six miles north of Tel Aviv, authorities said. At least nine Israelis were reported injured.

"News of some sort of explosion over in the Middle East was conveniently coincidental with the market downturn, so I've got to think that had something to do with it," said Charles Crane, chief market strategist with Victory SBSF Capital Management.

"Those kind of political issues continue to haunt the market," said the Griswold Company's McCooey. "There's no economic ones."

Drugs are downers for stocks

Drug and biotechnology stocks struggled throughout the session as several companies delivered bad news to investors.

Merck said it would delay the new drug application for its painkiller Arcoxia after a request for more test data from regulators. And Abbott Laboratories (ABT: down $7.37 to $38.30, Research, Estimates) cut its second-quarter and 2002 earnings outlook, due mainly to manufacturing problems at an Illinois plant and slower sales of an anti-obesity drug, Meridia/Reductil.

Drugmakers Johnson & Johnson (JNJ: down $1.51 to $57.49, Research, Estimates) and Bristol-Myers Squibb (BMY: down $0.90 to $26.00, Research, Estimates) also retreated.

"Abbott certainly doesn't help," said CSFB's Boyle. "We're seeing sellers of the biotechs and drugs and money going into some of the HMOs and we've seen a little bit of the money go into retailers."

Biotech shares tumbled across the board, with IDEC Pharmaceuticals (IDPH: down $6.34 to $32.03, Research, Estimates) falling sharply on trouble testing one drug and a delay in Medicare payments for another treatment.

Shares of Amgen (AMGN: down $3.06 to $38.75, Research, Estimates) and Chiron (CHIR: down $2.22 to $33.36, Research, Estimates) joined in the biotech decline.

Stocks were inspired in early trading by a lukewarm report from wireless handset maker Nokia.

Shares of the Finland-based company rose after the company said it will make its earnings target range for the quarter ending this month despite lower-than-expected sales. But the early rally attributed to the outlook couldn't stand up.

"Arguably, Nokia's news isn't good," said Art Hogan, chief market analyst at Jefferies & Co. "If we were rallying on Nokia, it was a little questionable on its reasoning."

The wireless sector also got a boost after Nextel Communications (NXTL: up $0.63 to $4.42, Research, Estimates) said it is on track to meet full-year earnings projections, citing stronger revenue growth and expense control.

Asian-Pacific stocks finished mixed Tuesday, with Tokyo's Nikkei index up 0.7 percent. European markets erased early losses following the Nokia forecast.

Treasury prices rose, sending the 10-year note yield down to 4.99 percent. The dollar rose against the yen but was weaker against the euro.

Light crude oil futures slipped 17 cents to $24.12 a barrel in New York. Gold rose $1.10 to $320.50 an ounce.

Market breadth was negative. On the New York Stock Exchange, decliners beat advances 5-to-3 as nearly 1.4 billion shares changed hands. On the Nasdaq, losers edged winners 11-to-6 as 1.68 billion shares traded.