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Market's outlook grows more dim

©Associated Press
June 7, 2002

NEW YORK -- Wall Street's fortunes turned negative again Thursday as a downgrade of chip makers by Merrill Lynch and retailers' disappointing sales gave investors more reasons to doubt the strength of a business recovery. Stocks fell sharply, with the tech sector suffering the heaviest losses.

"The market is in a very bad downtrend," said Gary Kaltbaum, market technician for Investors' Edge Partners in Orlando.

The Dow Jones Industrial Average closed down 172.16, or 1.8 percent, at 9,624.64. The loss easily wiped out the Dow's 108.96-point gain from Wednesday, when all of the market's major indicators finished higher for the first time in nearly two weeks.

The broader market also fell sharply. The Nasdaq Composite Index dropped 40.38, or 2.5 percent, to 1,554.88, losing all of its 17.14 advance from Wednesday. The Standard & Poor's 500 index fell 20.75, or 2.0 percent, to 1,029.15, erasing Wednesday's gain of 9.21.

It appeared likely the selling would continue today. After the end of regular trading, Intel reduced its second-quarter revenue outlook, blaming slumping demand for chips in Europe. The bellwether's stock fell sharply in the after-hours market and was joined by other high-tech issues.

Analysts said the market's persistent selling is no surprise because earnings remain depressed, jeopardizing the recovery investors had hoped would happen in the second half of 2002.

Fears of improper bookkeeping, involving Tyco and several other companies in the wake of Enron's collapse, and worries about tensions overseas also have given investors little reason to buy.

"There is just nobody buying. . . . You still have the same problems in the Middle East, the terrorist scares, a downgrade of Intel and semiconductors. There just isn't any good news right now," said Barry Berman, head trader for Robert W. Baird & Co. in Milwaukee.

During the regular session Intel fell $1.18 to $27 after Merrill Lynch lowered its near-term rating on the stock to "neutral" from "strong buy." After issuing its warning, Intel fell another $2.71 in extended trading.

Also downgraded by Merrill, Texas Instruments fell 75 cents to $27.69 in regular trading and lost another $1.64 in the extra session. Microsoft, which rose 24 cents to $51.90 in regular trading, fell in sympathy with Intel after hours, dropping $1.85. Weak retail sales for May also drove the market lower. Ann Taylor fell $1.28 to $26.80 after reporting a 5.2 percent decline in sales from stores open at least a year. Sears stumbled $1.76 to $56.26 after reporting sales slumped 4.4 percent decline at its department stores.

Tyco plunged nearly 16 percent, down $2.70 at $14.60, on concerns that former chief executive Dennis Kozlowski abused company funds. New York prosecutors are investigating whether Kozlowski tapped company accounts to buy his $18-million New York apartment or whether he got interest-free loans from Tyco to buy artwork. The Securities and Exchange Commission has also opened an investigation, according to a report in the Wall Street Journal.

Many analysts see no sign of reprieve for Wall Street, adding the market is poised for a third straight yearly decline. So far in 2002, the Nasdaq has taken the biggest hit, down 20.3 percent. The S&P 500 is down 10.4 percent, while the Dow is off nearly 4 percent.

Kaltbaum, the market technician with Investors' Edge Partners, said meeting already-lowered expectations isn't enough to inspire investors to buy and hold onto shares. "To get things going, you have to beat earnings and beat them good," Kaltbaum said.

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