Wednesday's Market: Dow Closes Below 10,000 for First Time Since October

It's 4 p.m. EST, do you know where your stocks finished? You might not want to find out. On the heels of a global market meltdown, the Dow Jones Industrial Average closed lower by 318 points, or 3.1%, to 9,973 -- the first time it's finished below 10,000 since Oct. 18, 2000. The Nasdaq Composite Index , which is nearly 60% off its all-time high, ended behind 43 points, or 2.1%, to 1,972 -- the second time it's closed below 2,000 this week.

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This morning, international credit rating agency Fitch put 19 Japanese banks under negative review, citing growing concern over the impact of falling share prices and bad loans. Worries about European and U.S. exposure to those banks -- which could include anything from loans to Japanese companies, to currency positions, or even the simple fact of doing business in Asia -- rocked market indices on both continents.

If only it was just beef Europe had to worry about. As a result of the credit scare, London's FTSE 100 ended down 125 points, or 2.2%, to 5596 -- its lowest close since Dec. 1998. Germany's Xetra Dax was also hit hard, ending down 113 points, or 2%, to 5127. And Paris' CAC-40 lost 60 points, or 1.2%, to 5127.

Elsewhere, rumors that the Bank of Japan is in emergency talks with a large financial institution and an earnings downgrade on European banks by Goldman Sachs helped send global markets into a tailspin. During the day, traders talked about massive selling from a hedge fund, not yet identified, that was long European stocks.

On Wall Street, morale was very low today. "Investors were as intent to get out of the market as they were to get in a year ago," said Tom Gallagher, head of U.S. equity sales and trading at CIBC World Markets. "We're at the opposite end of the emotional extreme."

Despite several attempts to rally, the Dow Jones closed near its daytime lows. Even as the blue-chip measure managed 100-point swings, traders said there was no catalyst to take the market higher. For many investors, the question became: Why buy stocks? Headed into the close, few found a reason to do so.

The good news: On the heels of today's selloff, market watchers foresee steeper interest rate cuts from the Federal Reserve to get the economy back on track. The majority of economists had been expecting the Fed to drop the fed funds rate by 50 basis-points to 5% when it meets on Tuesday, but the fed fund futures contract, a good proxy for monetary policy, is now pricing in more than a 50% chance for a 75-basis point interest rate cut.

Major Indices INDEX CHANGE % VALUE Dow 317.34 -3.08% 9,973.46 S&P 500 30.95 -2.58% 1166.71 Nasdaq 42.69 -2.12% 1972.09 Russell 2000 8.91 -1.93% 453.35 TSC Internet 10.93 -4.46% 234.33 NOTE CHANGE PRICE YIELD 10-Year Treasury 24/32 101 8/32 4.837% Market data as of: 5:14 p.m. EST, Mar. 14, 2001

For his part, Tony Crescenzi, chief bond market strategist at Miller Tabak, said he would not be surprised if the Fed cut rates by more than 75 basis-points next week since the global pain signals potential systemic weakness. "The Fed can't sit back and allow confidence to deteriorate," he said. Crescenzi does not rule out the possibility of a rate-ease before Mar. 20. "The fact that they prefer to act at meetings doesn't mean they won't cut rates before, as Greenspan showed us back in January."

Hardly Capitulation

According to Crescenzi, today's volume levels did not suggest capitulation, typically defined as a selling spree momentous enough to take stocks down so low that they look cheap again. The last time that happened was Sep. 1, 1998. On that day, the Dow Jones hit rock bottom, or 7,400, on volume of 1.2 billion shares -- twice the six-month volume average on the New York Stock Exchange at that time -- and then came back to close at 7,827. If that kind of rally were to take place today, volume levels would have to rise above 2 billion shares by those standards.

The roster of stocks that got hit spread far and wide. To be sure, bank stocks were smacked by the selloff: The Philadelphia Stock Exchange/KBW Bank Index, which tracks large banks, closed down 5.4%. Bank of America (BAC Quote) lost 4.6% to $51.75, J.P. Morgan Chase(JPM Quote) fell 7.7% to $43.75, and Citigroup (C Quote) sank 7.2% to $44.90.

Every single Dow stock was trading down this afternoon. The biggest drags on the blue-chip index were United Technologies (UTX Quote), which ended down 5.4% to $75 and Boeing (BA Quote), which closed behind 4.2% to 50.02.

Elsewhere, technology stocks were not immune. Microsoft (MSFT Quote) shed 0.2% to 54, Cisco decreased 5.3% to $20.25, and Intel (INTC Quote) slid 0.9% to $29.06.

More Earnings Warnings

Amid weakening fundamental conditions across the economy, earnings warnings have become the rule rather than the exception. According to earnings tracker First Call/Thomson Financial, close to 500 companies have issued profit warning this preannouncement season. For many CEOs, the problem remains a lack of visibility about their financial future.

The latest: McDonald's (MCD Quote) scaled back its 2001 earnings-per-share estimate, citing problems in Europe caused in part by outbreaks of mad cow disease and foot-and mouth-disease. McDonald's closed lower by 0.9% to $27.55.

Insurer MetLife(MET Quote) said after the close of regular trading yesterday that its fiscal first-quarter and full-year earnings would fall below expectations, due to bad weather in the Northeast and Southeast. It had lately lost 9.3% to $28.75.

Shares of Lucent (LU Quote) fell 2% to $11.02, after the company said it's considering selling or merging its optical fiber business, Optical Fiber Solutions. Among those thought to be interested in bidding for the company are Corning (GLW Quote), down 2.5% to $23.98, France's Alcatel (ALA Quote), lower by 2.9% to $35.93, JDS Uniphase (JDSU Quote), up 0.5% to $24.56, and Italy's Pirelli.

Sector Roundup

Carnage spilled across every sector of the market today, with bank, retail and transport indices suffering the worst blows. The Dow Transportation Average finished down 3.2%, on the heels of a profit warning from Northwest Airlines (NWAC Quote) -- off 5.4% to $19.75. The S&P Retail Index closed behind 2.2%.

Even defensive sectors saw very little relief. The S&P Tobacco Index dropped 2.7%, and the Amex Pharmaceutical Index lost 2.4%. Commodity-related indices were poor, as the Philadelphia Stock Exchange Forest & Paper Products Index lost 2.8%, the S&P Chemical Index fell 2.9%, and the Amex Oil & Gas Index dropped 0.9%.

Market Internals

Market Internals
Exchange	Advancers	Decliners	New Highs	New Lows	Volume
New York Stock Exchange	759	2328	50	110	1.4 billion
Nasdaq Stock Market	1083	2721	24	294	2.1 billion

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Most Active Stocks

NYSE Most Actives
Company	Shares Traded
General Electric (GE Quote)	35.4 million shares
Nortel (NT Quote)	30 million shares
EMC (EMC Quote)	28.2 million shares

Nasdaq Most Actives
Company	Shares Traded
Cisco (CSCO Quote)	117.8 million shares
Nextel Communications (NXTL Quote)	83.8 million shares
WorldCom (WCOM Quote)	74.9 million shares

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