Nov 8, 2002 4 min read

By Hope Yen AP Business Writer

NEW YORK (AP) – A dim technology forecast from Cisco Systemes sent stocks tumbling Thursday, as investors upbeat after four weeks of gains got a sobering reminder of the economy’s uncertain outlook. The Dow Jones industrials fell more than 180 points.

Analysts said many investors cashed in profits on fears that Wall Street’s recent rally, which was surprisingly strong, might have been too much, too soon.

“There’s still a paranoia about when the economy is going to get better,” said Philip S. Dow, managing director of equity strategy at Dain Rauscher Wessels. “With third-quarter earnings behind us, with the election behind us, you wonder where the cavalry is going to come from.”

“But my sense is this is a natural pause after a big rally,” he said.

The Dow dropped 184.22, or 2.1 percent, to close at 8,586.79, according to preliminary calculations.

The broader market also finished sharply lower. The Nasdaq composite index fell 41.80, or 3 percent, to 1,377.19. The Standard & Poor’s 500 index declined 21.07, or 2.3 percent, to 902.69.

Cisco fell 61 cents to $12.35 after the computer network maker reported fiscal first-quarter earnings that beat expectations, but also predicted a weaker second quarter due to soft sales. The news hurt other tech companies, including IBM, which dropped $2.59 to $78.95.

“The Cisco news has taken a little bit of the luster off the rose,” said Todd Clark, head of listed equity trading at Wells Fargo Securities. “The bigger picture is we had a tremendous run … and it was a logical spot to look for a pullback. This gave investors the excuse they needed.”

Analysts say investors are more upbeat after a four-week rally that has lifted the Dow 1,300 points, or about 18 percent. Wall Street also is hopeful that a Republican-controlled Congress following Tuesday’s elections will pass business-friendly initiatives such as tax cuts.

Still, the market is vulnerable to declines on bouts of profit-taking. Investors also remain concerned about the strength of the economic recovery, particularly after the Federal Reserve on Wednesday unexpectedly cut interest rates by a half-point.

Indeed, some analysts said some of Thursday’s declines could be a delayed reaction to the suprisingly large rate cut.

“I was surprised by the initial reaction that the market was able to rally when the Fed felt the need to cut 50 basis points” to stimulate the economy, Clark said.

Two encouraging economic reports released Thursday appeared to have little effect on trading.

The Labor Department reported that productivity grew at a brisk annual rate of 4 percent in the third quarter, the strongest showing since the beginning of the year. Gains in productivity help keep down inflation.

And new claims for unemployment benefits dropped last week by a seasonally adjusted 20,000 to 390,000, the lowest level since early October, the department said in a separate report. However, the week before, claims jumped by 16,000.

Investors also appeared to shrug off monthly sales figures showing many of the nation’s largest retailers, such as Wal-Mart and Kohl’s, showing gains and several exceeding Wall Street’s expectations, offering hope of a more robust holiday season.

Yahoo! dropped $1.78 to $15.60 after Prudential Securities cut the Internet company’s stock rating from buy to hold.

Costco Wholesale fell $1.64 to $32.07 after the discount warehouse chain cut its first-quarter outlook, citing tobacco price increases.

The financial services sector also took a hit. J.P. Morgan Chase declined $1.46 to $20.60 after the investment bank strongly denied rumors it suffered large losses on gold trades.

And H&R Block fell $5.65 to $35.35 after a Texas judge said he would order the tax preparer to return $74.9 million in fees sought in a class-action lawsuit.

Declining issues outnumbered advancers more than 9 to 4 on the New York Stock Exchange. Volume was moderate.

The Russell 2000 index, which tracks smaller company stocks, fell 9.58, or 2.4 percent, to 383.15.

Overseas, Japan’s Nikkei stock average finished 0.4 percent lower. In Europe, Germany’s DAX index was down 4.3 percent, France’s CAC-40 declined 3.2 percent, and Britain’s FTSE 100 dropped 0.6 percent.

—

On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com