The broad stock market indexes all took a dive Monday after speeches by three Federal Reserve Governors kindled new fears that the Fed is inclined to keep raising interest rates to fend off inflation.
The Dow Jones industrial average, which was up more than 1 percent shortly after the opening, slid 243.54 points, or 2.16 percent, to close at 11,008.17, a level not seen since the second day of trading in the new year, when it dipped below 11,000.
The technology-heavy Nasdaq composite index fell 139.32 points, or 3.29 percent, to 4,096.08, after being in positive territory most of the morning. It was the fourth-largest point drop in Nasdaq's history, but not in the top 10 in percentage terms. The previous fourth-biggest point decline was 138.43 points on April 19, 1999.
The market's downswing came after Federal Reserve Bank of Atlanta President Jack Guynn said he did not see many signs that the Fed's three interest rate hikes in 1999 were slowing consumer demand
The Federal Reserve's policy-setting committee is scheduled to meet on Feb. 1-2 to decide whether to raise interest rates again. Guynn is a voting member.
"You have to look for a sell-off to happen at any time, and
it could happen this week," said Ricky Harrington, the
technical analyst and senior vice president at Wachovia
Securities in Charlotte. N.C. "A thoughtful money manager has
to say this market is fighting the Fed. No one knows what it's
going to take to cool this market."
Even though the benchmark 30-year U.S. Treasury bond was up
4/32 with a yield at 6.69 percent, analysts said the fear of an
aggressive interest rate hike from the Federal Reserve in
February continued to pressure stocks.
"It's kinda like the movie Groundhog Day, where you
wake up and its Groundhog Day all over again. Tech's doing
pretty well, especially the chip stocks led by Intel. And you've
got everybody else reacting to worries over the Fed, interest
rates, an economy that's too strong, oil prices," said Alan
Skrainka, the chief market strategist at Edward Jones in St.
Louis.
Pharmaceuticals, building materials, hotel and gold stocks
were down while Internet, semiconductors and speciality health
care stocks were up.
The Dow Jones industrial average, which was up more
than 1 percent shortly after the opening, was down 29 points, or
0.26 percent, at 11,22, with a heavy weight in Procter & Gamble,
which was off 4-3/16 at 98-1/2 before it was halted to announce
it terminated three weeks of merger talks with Warner-Lambert Co
and American Home Products Corp..
P&G; said it will explore its options, including talks with
Pfizer Inc., which was down 1-1/2 at 33-9/16.
Pulling the Dow in the other direction was Intel, which was
up 5-1/4 at 103-3/16 after Dan Niles, an analyst at Roberston
Stephens said Intel was seeing its best January start in several
years.
American Express Co., was up 3-9/16 at 155-1/4 on
expectations that its earnings report, set for Monday afternoon,
would be positive.
Eastman Kodak Co., another Dow component, was up 2-15/16 at
63-11/16 after it reported earnings of $1.50 a share, compared
with the $1.24 expected by analysts polled by First Call/Thomson
Financial.
Of the nearly 400 companies that have reported earnings so
far, 85 percent have met or topped expectations, Gruntal's chief
investment strategist, Joseph Battipaglia, writes in his weekly
perspectives note to investors.
"The underlying strength in earnings alone, however, should
provide a solid basis for equities to outperform in the weeks
and months ahead," he said.
The Nasdaq composite index was off
its morning high, but still in positive territory. It was up 27
points, or 0.65 percent, at 4,262, on the heels of its third
consecutive record close on Friday.
The broader Standard & Poor's 500 index was down 4
points, or 0.28 percent, at 1,437.
Time Warner was down 2-5/16 at 88-15/16 on news it would
merge its music business with Britain's EMI Group Plc to create
the world's top record company, worth $20 billion, with a
powerful presence on the Internet.
Declining shares outpaced advances by 14 to 13 with more
than 496 million shares traded on the New York Stock Exchange.
There were 82 stocks at new highs and 81 at new lows.
On the Nasdaq, advancing stocks outpaced declines 11 to 8
with more than 949 million shares traded. There were 400 new
highs and 51 at new lows.
Other stocks in the news included regional telephone company
Bell Atlantic Corp. which rose 1/8 to 60-3/16 after it reported
a 12 percent increase in profits, in line with Wall Street
expectations.
Internet music company Liquid Audio Inc. was up 8-1/2 at
34-3/8 after Microsoft Corp. said it was in a deal with the
Redwood City, Calif-company to bring order to the online music
marketplace.
Electronics component maker Siliconix Inc. was up 58-3/4 at
222-1/2 after reporting earnings of $2.45 per share compared
with 65 cents a year ago.
Apartment and commercial real estate company Echelon
International Corp. was up 5-11/16 at 33-3/16 after it agreed to
be bought by EIN Acquisition Corp. for $228 million cash.
— The Associated Press and Reuters contributed to this report.
