NEWS AND COMMENTARY
January 26, 2001 
U.S. Stocks Fall; PMC-Sierra Says Growth to Slow, Cisco Falls
By Chelsea Emery, Bloomberg
Stock Market Surge Will Be Short-Lived ... Weiss comments
NEW YORK - U.S. stocks fell as computer- related and telecommunications companies such as PMC-Sierra Inc. said sales growth will slow further.
BroadVision Inc., a maker of software for electronic commerce, slumped after reporting a fourth-quarter loss.
"People have pushed the prices of these tech stocks up too high relative to where they should be considering their outlook for profits," said Allan Meyers, who helps manage $2 billion in stocks at Kent Funds in Grand Rapids, Michigan. The expectation for "the next quarter or two isn't that good."
"It doesn't help when someone like Alan Greenspan talks about growth in the U.S. approaching zero," said John Hatherly, head of global analysis at M&G; Investment Management, which oversees $191 billion.
The U.S. economy's growth rate has fallen "close to zero" and may slow further if consumer confidence slumps, Greenspan, the Federal Reserve chairman, said yesterday in testimony to a Senate committee.
Some investors see gains ahead. The Nasdaq's 10% gain this year has come because investors believe that Fed rate cuts will help the economy and corporate profits to rebound, said Jon Burnham, manager of the $220 million Burnham Fund.
The Nasdaq has gained 10% this year despite ever-worsening earnings reports and repeated warnings of more disappointments in the next two quarters. In fact, just last week Dell announced dismal earnings and the stock gained! That's a sure sign that investors believe that the Nasdaq is close to a bottom. But don't be fooled -- the Nasdaq is due for another big fall, and Alan Greenspan may have just provided the catalyst.
Greenspan made certain that he didn't drop any hints about what the Fed will do with interest rates next week, but he did mention that economic growth has slowed to a crawl and that it may slow further if consumer confidence dips. Increased lay-offs, the energy crisis spreading across the country, and the severe slowdown in the economy are all weighing on consumer confidence. Most people are bracing for a recession and that makes it almost inevitable.
The drop in the stock market today is only a precursor for the huge plunge to come. The markets have already priced in a half-point rate cut, so the Fed's move next week won't boost this weakened market. And even though Greenspan has come out all in favor of tax cuts, those will take months to work their way through Congress.
In short, there's no reason for the markets to go back up. And with the Nasdaq still trading at a price-to-earnings of close to 100 and the economic outlook increasingly grim, there's every reason for stocks to fall -- and fall hard.
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