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October 18, 2000

Market Update: Dow -- Hampered By IBM and J.P. Morgan -- Drops Below 10,000
By Kristen French, The

Investors Are Ready To Bail On Market ... Weiss comments

NEW YORK - Friday's runaway rally seemed like a distant memory this morning. While Monday was a middling day, Tuesday was bad day, and today's been a downright nasty day, as the indices tore into the red like that shark in Jaws tore into Robert Shaw.

Yesterday it was the semiconductors. Today it's the boxmakers -- and the banks, and the brokerages.

The Dow Jones Industrial Average crashed below its psychological support level of 10,000 this morning at the open. And as soon as trading on box-making bellwether IBM was resumed, the blue-chip index plunged over 400 points. The index had lately scraped its way back up, though it was still stuck in the mire. IBM was still gobbling up over 104 points of Dow.

Last night IBM reported lower-than-expected revenues and was ambiguous about its fourth quarter. Analysts began slamming the company this morning, including Bear Stearns and Goldman Sachs, which knocked the company off its recommend list.

IBM was lately down 15.8% to $95.13.

Investors hadn't expected any disappointments because the company didn't preannounce, and IBM shares have risen over the past few days. Many market pros were hoping that once the "preannouncement" season ended and the actual earnings reporting season began, there would be enough positive surprises to alleviate fears that corporate earnings were really on the rocks. But the reports have been mixed, and investors are concentrating on the bad.

IBM Not the Only Culprit

The other big earnings miss of the morning came from banking bellwether Chase Manhattan. The company partly blamed losses on the Nasdaq Composite Index, which hurt results at its venture capital arm. Chase was lately off 9.2% to $34.44.

Though it reported strong earnings overnight, brokerage J.P Morgan was suffering from Chase's misstep and helping to cripple the Dow in turn. J.P. Morgan was down 9.2% to $125, slashing 81 points from the index.

Meanwhile, IBM's trouble was spreading to pretty much all of tech -- except for the semiconductors, which appeared to be celebrating ABN Amro's upgrade on Intel. Intel last night posted earnings above its revised expectations. Though several other analysts came out with downgrades on the company, Intel was lately 5.9% higher to $38.38.

Today's dramatic swing in the Dow and Nasdaq reveals one thing: investors have lost their faith in the bull market. Earnings disappointments for the current quarter as well as expectations of worse times to come are weighing heavily. Plus, growing inflation points to an even greater slowdown for the economy.

Investors are long past believing that the market will continue to go up and up. At most, they're hoping that the market will bounce enough so that they can recoup some losses before it starts to plummet again. The Dow plunged past 10,000 and has much further to fall before it hits bottom. And today's 438-point drop in the Dow at the opening shows that a market crash can happen in a matter of minutes. As the economic outlook darkens, investors will be much faster to pull the plug. The next time a drop of this magnitude happens, don't expect a recovery.

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