Wall Street's tantrum over a lower-than-desired interest-rate cut gave way Wednesday to increasingly gloomy sentiment that the US economy is in for more hard knocks. Share prices tanked as investors fled to the relative safety of bonds and Treasuries on the final day of a decidedly dismal quarter for corporate earnings.
A bruising session for telecom stocks in particular drove the Wired Index down 17.99 points to close at 377.08. The Dow Jones Industrial Average plunged 237.90 to 7842.62.
"People are just nervous," said Art Russell, an analyst at Edward Jones. "They're worried more about Asia and Russia spilling over into Europe and the United States. People are worried about a recession and a slowdown in economic growth."
While many traders were disappointed that the Federal Reserve cut a key interest rate by only a quarter-point instead of a full half-point, there's growing consensus on the Street that Tuesday's reduction was just a first step by Fed chief Alan Greenspan.
"Greenspan has signaled to the market his intention to bring down interest rates," Russell observed. "We'll probably see a string of two or three cuts in a row, a quarter-point at a time."
There's already speculation that another lowering will be announced at the next meeting of the Fed's policy-making committee on 29 November. Such anticipation might not ease the market's chronic volatility, but at least it gives traders something to hope for.
In the meantime, imploding telecom stocks aren't doing anyone's ulcer any good. The sector took a tumble after Nortel Networks, the No. 2 seller of phone equipment in North America, warned that its second-half revenue growth won't meet analysts' expectations. The lag was blamed on weak demand out of Asia and Europe.
Nortel is only the latest telecom powerhouse to succumb to harsh global conditions. Earlier this month, the French telecom equipment-maker Alcatel saw its share price plummet after saying its earnings are on the decline, and two other equipment makers, Ciena and Tellabs, called off a proposed merger.
Rival telco hardware suppliers were hard hit by the Nortel announcement. Lucent Technologies (LU) shed US$5.50 to $69, and Nokia (NOK/A) was down $2.44 at $78.44.
MCI WorldCom (WCOM) fell $1.63 to $48.98 after reducing the amount of research costs it expects to write off from the marriage of MCI Communications and WorldCom. The newly consolidated company had hoped to write off as much as $7 billion from the deal, but lowered the amount to $3.1 billion. The Securities and Exchange Commission is taking an increasingly dim view of excessive R&D charges resulting from recent mega-deals.
Cable & Wireless (CWP) had some positive news for investors, but wasn't able to escape the market's downdraft. Its shares slid $2.56 to $27.44 even as the company announced it will offer its residential Internet customers long-distance weekday phone service for just 7 cents a minute.
Over in Japan, the Nikkei index dropped to a new 12-year low Wednesday as the government once again came up short in addressing economic concerns. Sony (SNE) was down $2.88 at $68.81 despite saying it will team up with Toyota and an online service called Internet Initiative Japan to offer low-cost telecom services to business customers.
Tech stocks also had that sinking feeling. Dell Computer (DELL) fell $2 to $65.81, and Intel (INTC) was $2.63 lower at $85.88. Microsoft (MSFT) shed $2.69 to $110.19, and Cisco Systems (CSCO) was down $2.75 at $61.88.
America Online (AOL) slid $5.81 to $111.56 -- reportedly after Goldman Sachs executed a block trade for 1 million shares of the company's stock on behalf of an unnamed seller. Yahoo (YHOO) ended $2 lower at $129.50.
Schlumberger (SLB), the world's largest oilfield-services outfit, declined $1.75 to $50.75 after saying it cut about 700 jobs from its work force this summer, and that falling oil prices will mean additional layoffs in the near future. Oil prices hit 10-year lows in the second quarter.
In transportation, AMR (AMR), parent company of American Airlines, slipped $3.38 to $55.69 following news that it will auction off three aircraft operations-related subsidiaries. Separately, Donaldson, Lufkin & Jenrette downgraded the carrier's stock to "market perform" from "buy."
The Nasdaq fell 40.21 points to 1693.84, while the S&P 500 was down 31.96 at 1017.06.
