Telecom concerns spark Wall Street sell-off
A bleak earnings forecast from Ericsson brought out more sceptics on Wall Street today, triggering a sharp stock sell-off amid concerns that business isn’t strong enough to justify higher stock prices.
The Dow Jones industrials fell 1.2%, while the Nasdaq composite index lost more than 2.1% of its value. Analysts, noting that trading volume was relatively light, said the market was suffering from investors’ apathy and frustration.
Although most first-quarter earnings reports have been in line with expectations, few companies have made bullish predictions about the future - giving buyers little incentive to get involved.
The Dow closed down 120.68, or 1.2%, to 10,136.43.
The most concentrated selling was in the technology-focused Nasdaq, which tumbled 38.15, or 2.1%, to 1,758.68. The broad Standard & Poor’s 500 index dropped 17.34, or 1.5%, to 1,107.83.
’’Certainly, we’re seeing weakness in the telecom and tech sectors today because of Ericsson. But overall I think the market is in a prove-it-to-me mood, rather than just hoping earnings will get better,’’ said Robert Harrington, head of listed block trading at UBS Warburg.
’’People want to see earnings improve, and the market’s going to reward those companies that have a good performance and not reward bad performance.’’
Investors sold Ericsson after it announced up to 17,000 job cuts, about 20 percent of its workforce, and reduced its forecast for future quarters.
The stock lost 80 cents, or 22.6%, to 2.74 dollars. The news was the latest difficulty for the troubled telecom sector, which has sold off repeatedly in recent months on concerns it will be a while before companies are able to spend significantly on its products.
Ericsson’s performance also made Wall Street nervous about other telecom stocks.
AT&T tumbled 75 cents, or 5.2%, to 13.75 dollars, ahead of earnings due out later this week. SBC Communications lost 1.06 dollars to 31.66 dollars. Both companies are Dow components and their losses pulled blue chips lower.
Among the biggest losers was WorldCom, which fell 1.97 dollars, or 32.9%, to 4.01 dollars. The telecom company reduced its 2002 financial outlook late Friday for its WorldCom Group because of weaker sales in its data and phone services.
The selling spread to other technology stocks. Cisco Systems dropped 39 cents to 14.87 dollars, while Microsoft fell 1.61 dollars to 55.59 dollars.
Microsoft’s chairman Bill Gates testified before a court today that will determine how the software company should be punished for anticompetitive behaviour.
Stocks have been fluctuating for weeks on questions about how robust the economic recovery will be. Although economic data is solidly improving, business profits and forecasts have yet to catch up.
With companies saying little positive about the future, many on Wall Street are playing it safe - selling stocks to lock in profits from rallies and avoiding significant new commitments.
That lack of confidence has made it difficult for the market to rally and hold its gains. For the year, the Dow is up 1.2%, the Nasdaq has lost 9.8% and the S-and-P is off 3.5%.
Some investors are also starting to wonder if the market is expecting too much from corporate profits, a possibility many analysts say is worth considering.
Declining issues led advancers nearly 2 to 1 on the New York Stock Exchange, where volume came to 1.16 billion shares, down from 1.18 billion Friday.
The Russell 2000 index fell 6.47, or 1.3%, to 510.93.
