Washout Wednesday jolts stocks

Advertiser News Services

Stock listings in Japan reflect the downturn in New York. The Nikkei 225 stock average lost 2.05 percent today. Computer-related shares and automakers also took a hit. Associated Press

The Dow Jones industrial average suffered its worst percentage drop in nearly six months yesterday, leaving it down for the year and adding credence to claims that the long-awaited price "correction" may be under way.

What's worrying traders is that, aside from the Dow's 1.5 percent drop to 10,297, yesterday's selloff was broad and deep, dragging down blue chips, tech shares and small-company stocks.

Until now, most of the selling had been confined to the more volatile, tech-rich Nasdaq composite. The Nasdaq soared 50 percent last year but has seen an early-year gain of 7.5 percent evaporate into a 2 percent loss.

The sudden broader drop, coinciding with growing concerns about a weak economy and lofty stock valuations, is significant because it could signal a trend change.

The market's recent relapse also raises questions about the staying power of the current bull market.

"We've had a spectacular run the past 12 months so if you get a little correction here, don't be surprised," says Ralph Acampora, director of technical research at Prudential Equity Group.

The stock exodus yesterday came on the fourth anniversary of the Nasdaq's peak of 5,048.62.

Stock market purists may beg to differ, but today also marks the one-year anniversary of the first bull market of the millennium. On March 11, 2003, as the Iraq war approached, stocks broke free of their malaise and began a 12-month upward march.

Shares of companies that provide raw materials, including DuPont Co. and Alcoa Inc., led yesterday's retreat.

The Standard & Poor's 500 has jumped 39 percent from its 2003 low on March 11. Profit growth for the benchmark's members will slow to 13 percent this year from 18 percent, according to Thomson Financial.

"We've come very far and are facing a decelerating trend in earnings in the next few months," said Owen Burman, who helps manage $1.2 billion as chief investment officer at Washington-based Riggs Investment Advisors.

"The market has been expensive for a while."

The S&P 500 lost 16.69, or 1.5 percent, to 1123.89. The Dow shed 160.07 to 10,296.89. Both indexes had their biggest declines since Oct. 22 and fell for a third consecutive day.

The Nasdaq composite index fell 31.01, or 1.6 percent, to 1,964.15.

The drop in U.S. stocks contributed to a negative move in Japanese stocks this morning in Tokyo. Honda Motor Co. and Canon Inc. led the decline on concern that a stronger yen will eroding exporters' earnings.

A drop in U.S. stocks does "cause sentiment to deteriorate in other markets, including Japan," said John R. Alkire, who helps manage $21 billion in assets as chief investment officer at Morgan Stanley Asset & Investment Trust Management Co. in Tokyo.

The Nikkei 225 stock average lost 138.82, or 1.2 percent, to 11,294.42 at the 11 a.m. break in Tokyo. The Topix index dropped 9.16, or 0.8 percent, to 1,119.24, with computer-related shares and automakers accounting for almost a third of its decline.

On the New York Stock Exchange yesterday, three stocks dropped for every one that advanced — the broadest decline since July 17.

Some 1.7 billion shares changed hands on the Big Board, 14 percent more than the three-month daily average.

An index of materials companies lost 2.8 percent, the biggest drop among the S&P 500's 10 industry groups. It has returned 47 percent in the past year.

A report showing that the U.S. trade deficit widened to a record $43.1 billion in January may have also hurt stocks.

The economy is forecast to grow at an annual rate of 4.5 percent in the first six months of 2004 and slow to 4 percent in the fourth quarter, according to the median forecasts in a Bloomberg News survey of economists.

Gross domestic product rose at an annual pace of 4.1 percent in the fourth quarter of 2003.

The Philadelphia Oil Service Sector Index, which tracks 15 companies, fell for the sixth straight day, losing 3.36 to 104.08. The benchmark's 3.1 percent drop was the biggest in more than a year. Crude oil fell after the Energy Department reported that U.S. inventories increased more than expected last week.

USA Today and Bloomberg News Service contributed to this report.