Dow 10,000 Bulwark Fails, Raising Fears of a Deluge to Follow

SAN FRANCISCO -- The dam broke. The line in the sand was crossed. The "fortress" known as Dow 10,000 tumbled under a second straight frontal assault today. But as the market's version of Rome burned, the "new kingdom" known as the Nasdaq Composite Index was only slightly singed.

Major Indices INDEX CHANGE % VALUE YR TO DATE Dow 230.51 -2.3% 9862.12 -14.2% S&P 500 20.07 -1.5% 1333.36 -9.2% Nasdaq 27.16 -0.6% 4590.49 +12.8% Russell 2000 2.70 +0.5% 556.74 +10.3% TSC Internet 8.45 -0.7% 1176.11 +1.9% TSC New Tech 30 5.00 -0.6% 777.72 +25.8% BOND CHANGE PRICE YIELD 30-Year Treasury 7/32 101 10/32 6.155%

In a veritable repeat of yesterday's session, a fierce battle was waged around Dow 10,000 for much of the day. But unlike the prior day, a final hour "counteroffensive" aimed at keeping the index above the key psychological level failed miserably. After trading as low as 9836.06, the Dow closed down 230.51, or 2.3%, to 9862.12, its lowest close since April 6, 1999. The Dow is now down 15.9% from its Jan. 14 record of 11,722.98.

In sympathy with the Dow, the S&P 500 fell 20.07, or 1.5%, to 1333.36.

But the blue-chips' afternoon weakness only modestly injured the Nasdaq. After trading as high as 4662.93, the tech proxy closed down 27.16, or 0.6%, to 4590.49, snapping its latest streak of record closes at two.

The Comp's smaller constituents helped the average avoid wider damage and the "small is beautiful" mantra was on display again. The Russell 2000 rose 2.70, or 0.5%, to 556.74 and the American Stock Exchange Composite Index rose 7.92, or 0.9%, to 943.54. The American Stock Exchange Biotech Index rose 2.6%, as that group again led the Lilliputians higher.

But the headlines tomorrow and this weekend undoubtedly will be about Wall Street's market-cap giants, which were knocked down several more notches.

The Dow was hardest hit by weakness in IBM (IBM), 3M (MMM), Hewlett-Packard (HWP), and American Express (AXP).

Additionally, General Electric's (GE) 3.8% decline to 126 was particularly troubling, according to John Roque, senior analyst at Arnhold and S. Bleichroeder (and a contributor to this site).

"GE for me is still the bellwether par excellence for the Dow, the S&P and the broader market," Roque said. "GE's inability to re-establish 130 as support says there's more downside for the Dow and S&P."

Blue-chip names outside the Dow also continued to suffer, including Schering-Plough (SGP), down 5.9% after Salomon Smith Barney cut its recommendation.

The technical significance of Dow 10,000 is debatable, but the analyst said there's risk the index will revisit 9500 and possibly 9000 in the near term.

More important than round numbers, today's action suggests "the trend for the broader market, excluding Nasdaq, continues to be poor," Roque said.

At what point -- if any -- that weakness will have a measurable impact on the rampaging tech and biotech sectors is impossible to judge, he continued. "Even the people who own the Nasdaq and own it big would have expected some knock-on effect" at this point.

Despite its still bullish long-term pattern, the Nasdaq 100 fell 1.8% today as technology giants such as Microsoft (MSFT), Sun Microsystems (SUNW), Cisco (CSCO) and MCI WorldCom (WCOM) fell in sympathy with their blue-chip counterparts. The Morgan Stanley High Tech 35 shed 1.8% while the Philadelphia Stock Exchange Semiconductor Index lost 3%.

TheStreet.com Internet Sector index fell 8.45, or 0.7% to 1176.11. TheStreet.com New Tech 30 slid 5, or 0.6%, to 777.72. Unveiled Jan. 5, the TSC New Tech 30 is a market-cap-weighted index focusing on tracking the so-called hot money part of the market. A list of index components is available at http://www.thestreet.com/newtech/.

Some Shining Stars in Tech

Still, there were some winners in the tech sector.

Commerce One (CMRC) leapt 18% after General Motors (GM), Ford (F) and DaimlerChrysler (DCX) agreed to combine their online procurement operations. Commerce One will have an equity stake in the venture, as will Oracle (ORCL), which rose 14%.

Telecom stocks such as Telecorp PCS (TLCP), up 13.1%, were in favor after Lehman Brothers made positive comments about the group.

Puma Technologies (PUMA) jumped 19.5% after the company posted results that bested expectations and set a 2-for-1 stock split last night.

New issues also fared well. Intersil Holding (ISIL) rose 116% from its IPO price while DigitalThink (DTHK) gained 107%.

Too Much of a Good Thing

The battle for Dow 10,000 may have been lost thanks to a sharp upward revision of fourth-quarter gross domestic product to 6.9% from an original 5.8%. That the report's inflationary component -- the implicit price deflator -- was unchanged at 2% didn't stop market players from fretting about how the Federal Reserve will react to the headline GDP numbers. (Oil prices rising back above $30 a barrel didn't help either.)

The price of the 30-year Treasury bond fell 7/32 to 101 10/32, its yield rising to 6.16%.

"Obviously the economy continues to grow much more strongly than anyone anticipated," said Lisa Cullen, strategist at Merrill Lynch. Today's release "reinforces the possibility the Fed is going to have to be much more aggressive than they have been in the last few months. Greenspan is under fire here. Clearly, they're going to keep [tightening] until we're down closer to 3% GDP [because] 6.9% is emerging-market territory."

In the waning moments of today's session some traders expressed confidence that buyers will reemerge next week. But, clearly, the prevailing tone of trading was decidedly negative today.

In New York Stock Exchange trading, 1.063 billion shares were exchanged while declining stocks bested advancers 1,805 to 1,163. In Nasdaq Stock Market action 1.813 billion shares traded -- the 10th-busiest session ever -- while losers led 2,225 to 1,940. New 52-week lows whipped new highs 229 to 53 on the Big Board while new highs led 325 to 121 in over-the-counter trading.

Among other indices, the Dow Jones Transportation Average fell 29.04, or 1.2%, to 2351.26 and the Dow Jones Utility Average slid 5.54, or 1.9%, to 279.99.

For the week, the Dow lost 3.5%; the S&P 500 fell 0.9%; the Nasdaq Comp rose 4.1%; the Russell 2000 advanced 2%; the DOT jumped 7.2%; the New Tech 30 hopped 9.4%; the Dow transportation average dipped 3.3%; the Dow utility average slipped 6.3%; and the Amex composite added 1.2%.

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