Recovering Economy And Rising Interest Rates Help JPMorgan Overcome Wall Street's Malaise

But investors' sentiment seems to be changing, especially with the growing perception that the economic malaise is spreading and that the decreased pace of American business may be destined to spread to the overseas partners and customers of American companies. Wall Street was shaken at the opening of trading in New York today after European stock markets plunged as new questions emerged about the health of Japanese and some European banks.

``We've sort of broadened the wall of worry to the global economy,'' said Arthur Hogan, chief market analyst for Jefferies & Company.

After a sharp early sell-off, the stock market failed in its attempts to recover. Weighed down in part by losses in Citigroup, JPMorgan Chase and American Express, the Dow fell 317.34 points, or 3.1 percent, to close at 9,973.46, after trading as low as 9,895.57. The last time the Dow closed below 10,000 was on Oct. 18.

The technology-heavy Nasdaq composite index dropped 42.69 points, or 2.1 percent, to 1,972.09. And the S.&P. 500 lost 30.95 points, or 2.6 percent, to 1,166.71.

``Investors are beginning to say this isn't just a technology-related thing,'' said Brett Gallagher, a vice president of Julius Baer Investment Management, who manages $400 million in equity holdings for foundations and wealthy individuals. ``If there's a slowdown, it's going to effect those industrials. I'm beginning to believe the safest place for us is cash.''

For the last six months, Mr. Gallagher has kept 5 percent of those portfolios' assets in cash, but he now plans to raise that level to 10 percent by week's end.

The market's decline ``worries me,'' President Bush said, speaking in New Jersey to promote his plan for a $1.6 trillion tax cut. ``With the right policies, I'm confident the economy will recover.''

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The so-called old-economy stocks that make up most of the Dow Jones industrial average have been largely shielded by perceptions that a slowdown in the technology sector could be caused by overstocked inventories. Investors once believed such a problem could be solved in a few quarters.

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Financial stocks and other old-economy issues have ``proven to be safer than tech stocks, but by no means are they immune to the economic cycle,'' Mr. Forelli of Independence Investment Associates said. ``If economists start writing off 2001 as a recession year, maybe it's too early to start buying stocks.''

Citigroup fell $3.34, or 6.9 percent, to $45.05, and JPMorgan Chase fell $3.24, or 6.84 percent, to $44.16. American Express fell $3.07, or 7.37 percent, to $38.56.

Within the technology sector, even companies that reported strong performances saw their stocks deflate. Comverse Technology, an Israeli company that makes telecommunications software, reported late Tuesday that quarterly earnings had exceeded Wall Street's expectations. It raised its guidance to analysts for the coming quarter, only to be dropped from the firm Goldman Sachs' recommendation list. Its shares fell $3.06, to $66.94.

``Brokerage firms are downgrading anything that is still standing to get out of the way of the selling pressure,'' said Mary C. Sunderland, a portfolio manager who oversees $2 billion in assets for Invista Capital Management. ``Once investor psychology starts turning, you can find something wrong with every stock.''

American financial stocks came under pressure after Fitch Inc., a credit rating agency, placed negative ratings on 19 Japanese banks. Fitch said that falling stock prices have added to the banks' difficulties in maintaining capital and that government intervention might be needed. Prices for goods and services have sharply fallen in Japan, feeding a cycle of rising credit risks and falling asset values, wages and salaries. Japanese stock prices have fallen to the levels of more than 15 years ago.

Adding to those pressures, analysts at Goldman Sachs lowered their earnings forecasts for German and French banks, including Deutsche Bank, saying the drop in stock prices was likely to cut into their trading profits.

In the United States, new signs emerged today of slowing demand for goods, which could further weaken the economy. The Commerce Department reported that business inventories rose 0.4 percent in January and retail inventories grew 0.6 percent. That growth, stronger than analysts had expected in both areas, raised concerns that inventory backlogs would weigh on economic growth in the second quarter.

Economists and market analysts are expecting the Federal Reserve's policy makers to reduce interest rates at their regular meeting next Tuesday in a bid to revive the economy. A rate cut of half a percentage point is widely expected, although some people on Wall Street are beginning to speculate that with the financial market turbulence and further signs of economic weakness, the Fed might cut short-term rates by three-quarters of a percent.

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Underscoring the American economy's weakness, several more companies warned that their financial results would be weaker than Wall Street's forecasts.

Nextel Communications plunged $5.44, or 26.6 percent, to $15 after the company said its first-quarter results would be depressed by the slowing economy and rising costs.

McDonald's, one of the 30 Dow industrials, fell 34 cents, or 1.2 percent, to $27.46 after it cut its 2001 earnings projection by 4 to 5 cents a share because of problems in Europe that might result from the outbreaks of mad cow disease and foot-and-mouth disease.

Northwest Airlines fell 81 cents, or 3.9 percent, to $19.88 after it said its first-quarter loss might reach $150 million as the economic slowdown cuts into business travel.


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Source : http://www.nytimes.com/2001/03/14/business/dow-closes-below-10000-on-fears-of-global-slowdown.html

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