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Yahoo! Finance Story - U.S. stocks dive to fresh multi-year lows



Title: U.S. stocks dive to fresh multi-year lows
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U.S. stocks dive to fresh multi-year lows
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CBS MarketWatch
U.S. stocks dive to fresh multi-year lows
Wednesday October 9, 4:29 pm ET

By Julie Rannazzisi

NEW YORK (CBS.MW) -- The stock indexes hit fresh multi-year lows on Wednesday, slammed by a gaggle of Wall Street analyst downgrades and ongoing worries about profit growth ahead of the official start of the third-quarter reporting season.

The Dow hit a fresh five-year low and the Nasdaq a new six-year nadir while the S&P 500 sat at a five-and-a-half year low.

"You're seeing a lot of emotional selling," said Peter Boockvar, equity strategist at Miller, Tabak & Co. While the strategist feels stocks are dramatically oversold over the short term, he acknowledged that they could stay that way for some time.

"Unfortunately this market is psychologically sick. There are absolutely no buyers so sellers are having a field day. The market is discounting all sorts of negative scenarios and stocks are being trashed globally," remarked Peter Cardillo, chief investment strategist with Global Partner Securities.

Glum analyst comments in the drug and airline sectors had a dampening effect on shares, with an earnings reaffirmation from Merck (NYSE:MRK - News) failing to lift spirits. The utility, bank and brokerage sectors were also big decliners and losses for financials accelerated after Moody's downgraded Dow component J.P. Morgan Chase.

Retail stocks failed to follow through on Tuesday's rally following news that a federal judge OK'd President Bush's request to order the reopening of West Coast ports and temporarily put an end to a costly lockout.

The Dow Jones Industrial Average (CBOT:^DJI - News) ended right around session lows, surrendering 215 points, or 2.9 percent, to 7,286. General Motors, Boeing, General Electric, Hewlett-Packard, Johnson & Johnson and Merck were among the biggest decliners while Intel, Philip Morris and Exxon Mobil escaped the carnage.

The Nasdaq Composite (NasdaqSC:^IXIC - News) gave up 15 points, or 1.3 percent, to 1,114 while the Nasdaq 100 Index (NasdaqSC:^NDX - News) eased 4 points, or 0.5 percent, to 807.

The Nasdaq 100 index managed to limit losses thanks to a hearty rally in Cisco Systems following five straight sessions of losses.

The Standard & Poor's 500 Index (CBOE:^SPX - News) relinquished 2.7 percent while the Russell 2000 Index (CBOE:^RUT - News) of small-capitalization stocks plunged 3.9 percent.

Volume came in at 1.80 million on the NYSE and at 1.74 billion on the Nasdaq Stock Market. Market breadth was horrific, with losers defeating winners by 28 to 5 on the NYSE and by 26 to 9 on the Nasdaq.

Goldman lowers S&P, Dow targets

Goldman Sachs' chief investment strategist Abby Joseph Cohen lowered her 12-month target on the Dow industrials (CBOT:^DJI - News) to 10,800 from 11,300 and the S&P 500's (CBOE:^SPX - News) to 1,150 from 1,300.

Still, the new targets represent upside of 43 percent and 44 percent, respectively, from current levels. And despite the target trimming, Cohen claims that stocks are undervalued based on her dividend discount model.

"We think that share prices already reflect ugly scenarios and that the large risk premium embedded in share prices provides a cushion," she told clients.

The well-known strategist does not expect a double-dip recession scenario to play out and feels that the "worst is past," with profits moderately rising and "looking cleaner." Cohen acknowledged that higher investor risk aversion will take longer to dissipate but predicts it will decline within the next 12 to 18 months.

GE declines; financial, airline, drug stocks under pressure

Dow stock General Electric (NYSE:GE - News) moved 6 percent lower after Morgan Stanley cut its 2003 earnings estimates on the stock, citing worries over continued weakness in the industrial giant's short-cycle business, deterioration in its power and aerospace businesses and losses in GE Capital's portfolio. GE will be the second Dow stock to unveil its results. It will do so on Friday. See story.

Moody's Investors Service cut its long-term credit rating on Dow component J.P. Morgan Chase (NYSE:JPM - News) to reflect concerns regarding the medium-term outlook for the banking giant's business performance. Shares lost 6.9 percent. And American Express (NYSE:AXP - News) declined 3.9 percent after Bear Stearns sliced its second half of 2002 and 2003 estimates on the Dow component.

Merck (NYSE:MRK - News) fell 1.3 percent after rising briefly following an earnings reaffirmation for the third quarter and for 2003. Earlier in the session, Raymond James had downgraded Merck to a "market perform" from a "strong buy" on expectations the drug titan would warn of an earnings shortfall.

And US Bancorp Piper Jaffray downgraded Dow component Johnson & Johnson (NYSE:JNJ - News) to an "outperform" rating from a "strong buy," sending shares 4 percent lower. The firm cited valuation worries due to recent appreciation in the drug behemoth's shares. US Bancorp believes J&J is now the "single most expensive" U.S.-based large-cap pharma company.

On the earnings front, Abbott Laboratories (NYSE:ABT - News) posted a third-quarter profit that was in line with expectations but announced restructuring plans that would lead to a 3-percent workforce reduction. Looking ahead, the drug maker expects fourth-quarter earnings to be in line with current expectations. Shares put on 2.4 percent in recent trades.

Airline stocks tumbled after CS First Boston lowered its view on the airline sector (AMEX:^XAL - News) to a "market weight" from an "overweight" on worries over the impact of a potential war with Iraq on earnings and cash flow, among other things. Individually, the firm took down its view on AMR Corp. (NYSE:AMR - News) to a "neutral" from an "outperform." AMR plunged 16.6 percent while fellow carriers Continental and Delta slumped 15.5 percent and 10.7 percent, respectively. See airline sector story.

The automakers came under assault after Lehman Bros. came out with a glum note on General Motors (NYSE:GM - News) , sending its shares down 7.5 percent. Lehman lowered its free cash flow forecast for GM over the 2003 through 2006 period by $4.5 billion due to the diminished value of its Hughes stake and the expected drain from the anticipated acquisition if Italy's Fiat. Fellow automaker Ford tumbled almost 9 percent. See story on autos.

In the brokerage sector, Banc of America Securities lowered its third-quarter, 2002 and 2003 profit estimates on brokerage powerhouse Merrill Lynch (NYSE:MER - News) . B of A believes revenue weakness at Merrill will overpower expense progress and that progress in margin expansion is unlikely to surface in the current "extremely difficult" revenue quarter. Merrill shares declined 4.5 percent while Morgan Stanley slid 5.7 percent and Lehman eased 4.4 percent.

Shares of machinery companies also declined after Salomon Smith Barney issued a cautious note on the sector. The brokerage took the hatchet to its earnings and price targets for Dow stock Caterpillar (NYSE:CAT - News) as well as to United Rentals (NYSE:URI - News) on deteriorating construction equipment fundamentals. CAT shares fell 6.1 percent and United Rentals 3.4 percent. See The Ratings Game.

Retail issues dropped significantly a day after rallying on the temporary resolution to the port lockout on the West Coast. Best Buy (NYSE:BBY - News) was a big decliner, relinquishing 11.3 percent after Merrill Lynch trimmed earnings estimates on the stock, citing less robust spending trends on higher ticket items. See related story.

Sara Lee (NYSE:SLE - News) spiked 7.7 percent after telling investors late Tuesday that fiscal first-quarter earnings would come in well ahead of expectations. Salomon upped its view on the stock following the news to an "in-line" from an "underperform."

But General Mills (NYSE:GIS - News) fell 3 percent after CS First Boston downgraded the company to a "neutral" from an "outperform."

Cisco snaps losing streak; Corning rallies

Tech bellwether Cisco Systems (NasdaqNM:CSCO - News) snapped a five-day losing streak and headed 8 percent higher. The networking kingpin has been the target of many Wall Street analysts, which have lowered their earnings estimates on the stock in recent sessions. But on Wednesday, Needham upped Cisco to a "strong buy" from a "buy," noting that the stock's sell-off has created "more than enough potential gain" to justify an upgrade. The firm also pointed to Cisco's dominant market position and impressive new product flow.

Another bright spot in the tech sector was Corning, which surged 12.7 percent after backing its third-quarter financial targets. Still, the company acknowledged that continued difficulty in the telecom sector would lead to a restructuring that'll result in more layoffs. The fiber-optic firm (NYSE:GLW - News) also said it may sell or discontinue some non-core assets, close plants and consolidate manufacturing capacity. See story.

UBS Warburg lowered its 2002 earnings-per-share estimate on SBC Communications to reflect continued weakness in the economy and expected softness in its wireless results. On Tuesday, the Dow component (NYSE:SBC - News) said it was comfortable with Wall Street's full-year profit target. SBC shares shed 1 percent.

Check Movers & Shakers for the latest individual stock news.

Treasurys log hefty gains

Government bonds remained well bid across the board as fixed-income investors reacted to more troubles for equities.

The 10-year Treasury note climbed 15/32 to yield (CBOE:^TNX - News) 3.58 percent while the 30-year government bond gained 19/32 to yield (CBOE:^TYX - News) 4.665 percent. and related story on rising junk bond yields.

No data are scheduled for release on Wednesday in the third straight session devoid of economic news. Friday will be the big day for data-hungry investors, with September retail sales, the Michigan consumer sentiment index and the September producer price index on tap.

In the currency sector, the dollar weakened against its chief rivals, reflecting more bruising declines in the equity market. The buck lost 0.8 percent to 123.25 yen while the euro rallied 1.1 percent to 99.01 cents.


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