Stocks Drop Further On Dim Economic Data

Rense.com

Stocks Drop Further On
Dim Economic Data
8-5-2

NEW YORK (Reuters) - Stocks sagged on Monday, yanking the Nasdaq Composite Index to fresh 5-year lows, as data showed growth of the U.S. service sector has slowed, fanning fears the economic recovery has hit a roadblock.

Wall Street has been grappling with fears the economy may be poised for a double-dip recession, defined as two periods of recession separated by a brief upturn. Within the past week, data has shown tepid second-quarter economic growth, a manufacturing slowdown in July and a slump in June construction spending.

"The data confirmed (the concerns that) started last week -- that the economy has been weaker than we all thought for longer than we all thought," said David Briggs, head of equity trading for Federated Investors. "It's getting tough out there."

Leading network equipment maker Cisco Systems Inc. fell after investment bank Lehman Brothers cut its recommendation on the stock, saying demand for tech equipment has slowed. Cisco is due to report quarterly results after the bell on Tuesday.

"Tech continues to be an anchor around the market's neck," said Patrick Boyle, a stock trader for Credit Suisse First Boston.

The technology-laced Nasdaq Composite Index fell for the fourth-straight session, down 41.91 points, or 3.36 percent, at 1,206.01, according to the latest available figures. The index has erased a recent 115-point rally and carved out closing lows unseen since April, 1997.

The Dow Jones industrial average was down 269.5 points, or 3.24 percent, at 8,043.63. The broader Standard & Poor's 500 Index was down 29.64 points, or 3.43 percent, at 834.60.

Losers trounced winners by a ratio of 3 to 1 on the New York Stock Exchange and about 8 to 3 on Nasdaq. More than 1.4 billion shares changed hands on the Big Board, and more than 1.33 billion traded on Nasdaq.

Web gear giant Cisco dropped 53 cents to $11.36, ranking as the most active share on the Nasdaq. Lehman cut its rating on the company to "equal weight" from "strong buy," citing subdued demand for network equipment. Cisco is expected to report its quarterly earnings on Tuesday after the close of most stock exchanges.

Consumer products giant Procter & Gamble Co. fell $2.40, or 2.7 percent, to $87.44 after posting a quarterly profit that topped analysts' estimates, but also posting revenues which were slightly below expectations.

"They're the best consumer name and their revenues missed," said Michael O'Hare head of block trading at Lehman. "Without the consumer, the market's in trouble. The consumer is the last leg before you fall in."

Banking giants J.P. Morgan Chase & Co. Inc. and Citigroup Inc., battered last month over ties to collapsed energy trader Enron Corp., were hit again after investment bank Lehman Brothers cut its 12-month target prices on the stocks, citing a tough operating environment and economic uncertainty. J.P. Morgan fell $1.50 to $22.35 and Citigroup dropped $2.23 at $28.65.

Cable television operator Cox Communications Inc. skidded $4.83, or 19 percent, to $20.19 after Credit Suisse First Boston cut its investment rating on the company to "hold" from "strong buy," citing concerns that accounting for subscriber turnover will hurt profit margins.

Power producer Mirant Corp. tumbled 58 cents, or more than 16 percent, to $2.91. The company said the U.S. Securities and Exchange Commission has launched an informal inquiry into possible sham energy trades and the company's accounting practices. Mirant disclosed last week it overstated the value of assets and liabilities in its 2001 financial statements.

The latest economic data brought more gloom to the beleaguered market.

The Institute for Supply Management said its monthly non-manufacturing index fell to 53.1 in July from 57.2 in June, marking the second straight month the index has fallen. Any reading below 50 denotes contraction. The figure was below analysts' forecasts for a dip to 54.6 and down from a nearly two-year peak of 60.1 in May.

The service sector is the largest part of the economy and includes everything from tourism to legal help.

"There is an uneasy feeling that with the economy slowing, the earnings picture will follow and, not disintegrate but weaken," said Barry Hyman, chief investment strategist at Ehrenkrantz, King, Nussbaum.

In a sign the pace of service sector growth may slow further in coming months, the new orders index -- a gauge of future demand -- fell to 52.6 from 56.9 in June. Survey respondents said that while the economy continued to improve, the outlook remained cautious through year-end.

"A lot of people think we will actually avoid a double-dip recession, but the fear is still out there," said Michelle Clayman, chief investment officer at New Amsterdam Partners, which oversees $1.4 billion. "For the retail investor, it may take a bit of time until they have confidence in the market again."

As stocks skidded, bonds rallied. Short-dated U.S. Treasury yields touched record lows after the report on weak services sector growth and flailing stocks sent investors running for the safe haven of government securities.

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