Wall St. still in nosedive


Gains in some 'safe-haven' stocks prevented losses from being worse

By Alexandra Twin
CNN/Money Staff Writer

NEW YORK (CNN/Money) -- A profit warning from Novellus Systems and broad-based weakness in the telecom sector pushed the Nasdaq market sharply lower Tuesday, while renewed concerns about Citigroup's Enron ties kept blue chips under pressure.

The losses only further underlined the drastic loss of confidence in stocks that have plagued the U.S. economy in recent weeks. The Dow Jones industrial average has fallen in each of the last nine weeks.

The 30-share Dow, the world's most widely watched stock average, sank another 82.24 to 7,702.34 after seesawing sharply throughout the session. The close was the Dow's lowest since October 1, 1998.

The Nasdaq composite tumbled even more sharply, sinking 53.60 to 1,229.05, the lowest close since April 28, 1997. The Standard & Poor's 500 index fell 22.15 to 797.70; it also carved out a new five-year low.

"The volatility today (Tuesday) was astounding and the moves were very dramatic and quick," Stephen Porpora, managing floor broker at William O'Neill & Co. told CNNfn's Street Sweep.

But on a positive note, "I was surprised, given the weakness in the financials, that we weren't down significantly lower. So maybe we can find a little solace in that. I am also slightly encouraged that we have gotten decent earnings from some visible companies."

After the close of trade, drugmaker Merck (MRK: down $0.96 to $39.05) announced a $10 billion stock buyback plan.

Also after the close of trade, online merchant Amazon.com (AMZN: down $0.95 to $14.55) reported a narrower-than-expected quarterly loss of a penny a share, versus a 16-cent-a-share loss a year earlier. The company was expected to have lost six cents a share.

Amgen, AOL Time Warner, DuPont, Halliburton, Martha Stewart Living Omnimedia and McDonald's are among the companies due to report results Wednesday.

Financial services firm Citigroup (C: down $5.04 to $27.00) tumbled for the second straight session in heavy trading -- eight times the stock's average daily volume -- a sign that big institutional investors may be losing faith in the company.

Senate investigators said Tuesday that Citigroup and rival J.P. Morgan Chase helped bankrupt energy trader Enron and several other companies set up sham transactions to alter their financial statements. Questions about analyst Jack Grubman, who covered WorldCom for Citigroup unit Salomon Smith Barney, have also plagued the company's stock.

Microsoft (MSFT: down $3.30 to $43.01) and IBM (IBM: down $1.45 to $67.05) also traded lower.

On Monday, regional telecom provider BellSouth (BLS: down $1.31 to $21.30) reported a weaker second-quarter profit that missed analysts' estimates. In addition, telecom equipment maker Lucent Technologies (LU: down $0.45 to $1.65) reported weak fiscal third-quarter results on Tuesday.

"Techs are being impacted by the same concerns that the rest of the market is," said Arnie Berman, technology strategist at SoundView Technology Group. "But the things that are making tech investors most squeamish today (Tuesday) are Novellus' order outlook, which is no surprise, but is still discouraging, and BellSouth's weak report yesterday (Monday).

Safe havens

Gains in a few of the defensive, so-called "safe haven" names on the Dow helped prevent worse losses.

"You have gains in the more cyclical names versus selling in Citigroup and J.P. Morgan. You also have the Dow getting a lift from some positive short-term movement in the dollar," said Peter Green, market analyst at MKM Partners. The dollar rallied against the yen and the euro, which fell below $1.

Two companies that helped the Dow Monday continued to provide some support. On Monday, diversified manufacturer 3M (MMM: up $2.76 to $111.76) posted a second-quarter profit of $1.36 a share, 2 cents above consensus and better than the $1.12 earned in the period a year earlier. The company also said it expects to top second-half forecasts.

Also Monday, consumer products maker Procter & Gamble (PG: up $1.38 to $79.21) rose after saying it will increase its stock repurchases in fiscal 2003 and that it remains confident about its business. In addition, UBS Warburg upgraded the stock to "strong buy" from "buy" within a broader upgrade of the household products makers.

Two Dow components in the telecom sector offered positive results, but failed to trade higher on the news. AT&T (T: down $0.72 to $8.80) reported an unexpected gain in its second-quarter earnings that topped expectations.

The company also said that it should meet or beat profit forecasts for the third quarter. SBC Communications (SBC: down $0.66 to $23.30) reported slightly lower second-quarter earnings that topped estimates.

'Wait and see'

"Right now, the market is in a bit of a fog, as it's being pushed and pulled in different directions," said MKM Partners' Green.

"The market is clearly oversold, which could mean a bounce, but with this kind of volatility, it could also get more oversold," said Brian Finnerty, managing director at Melhado Flynn & Associates. "It's very much a wait-and-see situation."

European markets closed lower, while Asian-Pacific stocks finished mostly higher Tuesday.

Treasury prices rose, pushing the 10-year note yield down to 4.41 percent.

Light crude oil futures fell 39 cents to $26.31 a barrel in London. Gold fell sharply in U.S. trading.

Market breadth was negative. On the New York Stock Exchange, decliners topped advancers almost 7-to-2 as 2.41 billion shares changed hands. On the Nasdaq, losers led winners by 3-to-1 as 2.38 billion shares traded