Rough week for Wall Street

Summary:Talk of war and profit warnings from technology companies sent the stock markets reeling for the fifth straight day as both the Dow and Nasdaq take hits.

Talk of war and profit warnings from technology companies rattled the stock markets for the fifth straight day Friday, putting an exclamation point on what has been a horrendous week for Wall Street.

The tech-heavy Nasdaq composite index slumped 47.74 to 1,423.19. The Dow Jones industrial average fell 140.40 to close at 8,235.81, down 14.3 percent for the week. For the week, the Nasdaq lost 16.1 percent and the Dow dropped 14.3 percent.

Aside from a few positive swings in the market--Wednesday's final hour of buying and Friday's brief interlude with Dow gains--investors have largely dumped shares since the markets reopened following the Sept. 11 terrorist attacks on the World Trade Center and the Pentagon.

Although the market sell-off is on par with historical reactions to catastrophe, that's little comfort to investors who have seen their portfolios decimated this week. It was the worst weekly performance for the Dow since Germany invaded Belgium and France in May 1940, and the Nasdaq's weakest since April 2000.

Predictably, the airline, media and insurance industries have taken a big hit this week, and the technology sector hasn't been immune. Tech bellwethers such as Dell Computer, Applied Materials and Cisco Systems have all suffered declines topping 12 percent. Online travel companies such as Priceline.com and Expedia have fared far worse. Other sectors that have faltered:

• The CNET server software index fell more than 10 percent this week. Many software companies have "back-end loaded" quarters, meaning they tend to close most of their deals at the end of the quarter. With businesses nationwide virtually coming to a halt in the middle of September, companies such as i2 Technologies and its rivals have little chance to make their quarters.

• The CNET storage index lost at least 9 percent this week. That drop is contrary to what many analysts had predicted. If anything, the World Trade Center disaster showed the importance of storing data on a network instead of at one central location. But storage giant EMC said Thursday that it would eliminate more than 2,000 jobs and probably report a third-quarter loss.

• The CNET PC hardware index dropped more than 11 percent this week. EMC's profit warning was viewed as a harbinger of things to come for most hardware companies such as IBM, Hewlett-Packard, Sun Microsystems, Compaq Computer, Apple Computer and Dell. "We expect that just about every company in the computer hardware and storage industries will come in light of expectations," said Bear Stearns analyst Andrew Neff.

Lehman analyst Dan Niles predicts that PC unit sales will drop 5 percent in 2001 and grow only 7 percent in 2002. He earlier predicted flat sales in 2001 and 12 percent growth in 2002.

Hunkered down
The biggest problem facing the markets and the economy is that demand for goods, technology and stocks has tumbled.

Investors and consumers are laying low, analysts said. Late Thursday, President Bush warned of a lengthy war on terrorism in the wake of last week's attacks that destroyed the World Trade Center and part of the Pentagon, killing an estimated 6,000.

"Markets are highly focused on war prospects," BMO Nesbitt Burns analyst Russell Sheldon said in a research note Friday. "Keep the hatches battened down."

What the markets do now largely depends on what political moves Bush makes and what economic stimulus can be provided by the Federal Reserve and the government.

"We will not attempt to forecast what cannot be anticipated, such as the nature and frequency of any further terrorist attacks on the U.S.," said Merrill Lynch strategist Christine Callies.

Analysts all agree that the terrorist attacks have nudged the U.S. economy into a recession, something which was already a possibility before the disaster destroyed whatever confidence consumers had left.

Though the Federal Reserve reacted quickly to stave off inflation, cutting interest rates by 50 basis points Monday, and is widely expected to do so again, economists say there isn't much hope that such measures can stave off a recession.

"The global recession is deepening, with layoffs mounting," said Bear Stearns analyst David Malpass.

Small victories?
Malpass' outlook is a sea change from Monday. America applauded the reopening of the stock market as New York police officers and firefighters rang the opening bell for one of the most anticipated trading days in history.

The market opening was seen as a small miracle since it operated flawlessly on cobbled-together phone and data lines, as much of Wall Street's infrastructure and technology was destroyed in the Sept. 11 attacks.

Analysts expected a sell-off Monday and got one, but they remained optimistic because there wasn't a lot of panic. However, the hope amid calls for a patriotic rally and stock buybacks evaporated as the major indexes skidded throughout the week.

Though panic selling, the worst-case scenario, failed to materialize, so did the rally that a grassroots e-mail campaign had tried to stir up. Messages urged investors not to short airline and other stocks sure to tumble in the wake of the attack, and instead to buy large chunks of shares as a type of "war bond."

Instead, investors have followed a middle path, calmly selling and sometimes opportunity-scouting. Corporate buybacks may have helped support the markets, as technology companies including BEA Systems, Cisco Systems, DoubleClick, Intel and Siebel Systems announced they would purchase large chunks of their own stock.

Tech tumbles
Those buybacks from tech leaders haven't done much more than give some psychological balm to the sector. After the terrorist attack, analysts started warning about weak quarters from software companies and others.

"Widespread pessimism regarding September performance and uncertain December prospects is well founded, and will likely encourage companies to defer deal activity into the next quarter," wrote J.P. Morgan analyst Chris Galvin. "Removing a week of activity in September is especially hard on enterprise software companies, which can typically experience 40 to 60 percent of sales in the final month of the quarter and usually describe (the third quarter) as their most back-end loaded quarter of a given fiscal year."

It's not just the big names that will be hurt; the crisis could "hasten a shakeout that was already going to happen in the software industry," said Needham analyst Richard Davis.

Davis said companies "that have proven unable to make money or who are experiencing sharply lower sequential revenue" may not be able to make it through the downturn, flagging BroadVision, Ariba, Commerce One, Vignette, Vitria and i2 as examples.

Analysts had initially hoped that the storage sector wouldn't be touched that much by the tragedy. Indeed, some speculated that the crisis could help that market, since it would have reinforced the need for backing up important materials.

"This is a sad reminder that storage is strategic," Morgan Stanley analyst Gillian Munson wrote earlier this week. "We think that there will be a lot of focus on strong systems vendors and backup."

But EMC's profit warning and layoff announcement dashed those hopes. Goldman Sachs analyst Laura Conigliaro had already lowered estimates for EMC before the company's announcement "based on the belief that, even prior to the events of Sept. 11, most technology companies were already probably tracking below expectations" for the third quarter.

EMC's problems show that the terrorist attacks are going to have a ripple effect on technology companies.

Aside from wireless stocks, which did well this week, no tech sector emerged unscathed. Online travel companies Priceline.com, Expedia and Travelocity all tumbled as it became obvious that Americans would shy away from air travel for a while.

"We have no ability to predict when traveler confidence will return," said Bailey Dalton, an analyst with C.E. Unterberg Towbin.

Staff writer Sergio Non contributed to this report. Talk of war and profit warnings from technology companies rattled the stock markets for the fifth straight day Friday, putting an exclamation point on what has been a horrendous week for Wall Street.

The tech-heavy Nasdaq composite index slumped 47.74 to 1,423.19. The Dow Jones industrial average fell 140.40 to close at 8,235.81, down 14.3 percent for the week. For the week, the Nasdaq lost 16.1 percent and the Dow dropped 14.3 percent.

Aside from a few positive swings in the market--Wednesday's final hour of buying and Friday's brief interlude with Dow gains--investors have largely dumped shares since the markets reopened following the Sept. 11 terrorist attacks on the World Trade Center and the Pentagon.

Although the market sell-off is on par with historical reactions to catastrophe, that's little comfort to investors who have seen their portfolios decimated this week. It was the worst weekly performance for the Dow since Germany invaded Belgium and France in May 1940, and the Nasdaq's weakest since April 2000.

Predictably, the airline, media and insurance industries have taken a big hit this week, and the technology sector hasn't been immune. Tech bellwethers such as Dell Computer, Applied Materials and Cisco Systems have all suffered declines topping 12 percent. Online travel companies such as Priceline.com and Expedia have fared far worse. Other sectors that have faltered:

• The CNET server software index fell more than 10 percent this week. Many software companies have "back-end loaded" quarters, meaning they tend to close most of their deals at the end of the quarter. With businesses nationwide virtually coming to a halt in the middle of September, companies such as i2 Technologies and its rivals have little chance to make their quarters.

• The CNET storage index lost at least 9 percent this week. That drop is contrary to what many analysts had predicted. If anything, the World Trade Center disaster showed the importance of storing data on a network instead of at one central location. But storage giant EMC said Thursday that it would eliminate more than 2,000 jobs and probably report a third-quarter loss.

• The CNET PC hardware index dropped more than 11 percent this week. EMC's profit warning was viewed as a harbinger of things to come for most hardware companies such as IBM, Hewlett-Packard, Sun Microsystems, Compaq Computer, Apple Computer and Dell. "We expect that just about every company in the computer hardware and storage industries will come in light of expectations," said Bear Stearns analyst Andrew Neff.

Lehman analyst Dan Niles predicts that PC unit sales will drop 5 percent in 2001 and grow only 7 percent in 2002. He earlier predicted flat sales in 2001 and 12 percent growth in 2002.

Hunkered down
The biggest problem facing the markets and the economy is that demand for goods, technology and stocks has tumbled.

Investors and consumers are laying low, analysts said. Late Thursday, President Bush warned of a lengthy war on terrorism in the wake of last week's attacks that destroyed the World Trade Center and part of the Pentagon, killing an estimated 6,000.

"Markets are highly focused on war prospects," BMO Nesbitt Burns analyst Russell Sheldon said in a research note Friday. "Keep the hatches battened down."

What the markets do now largely depends on what political moves Bush makes and what economic stimulus can be provided by the Federal Reserve and the government.

"We will not attempt to forecast what cannot be anticipated, such as the nature and frequency of any further terrorist attacks on the U.S.," said Merrill Lynch strategist Christine Callies.

Analysts all agree that the terrorist attacks have nudged the U.S. economy into a recession, something which was already a possibility before the disaster destroyed whatever confidence consumers had left.

Though the Federal Reserve reacted quickly to stave off inflation, cutting interest rates by 50 basis points Monday, and is widely expected to do so again, economists say there isn't much hope that such measures can stave off a recession.

"The global recession is deepening, with layoffs mounting," said Bear Stearns analyst David Malpass.

Small victories?
Malpass' outlook is a sea change from Monday. America applauded the reopening of the stock market as New York police officers and firefighters rang the opening bell for one of the most anticipated trading days in history.

The market opening was seen as a small miracle since it operated flawlessly on cobbled-together phone and data lines, as much of Wall Street's infrastructure and technology was destroyed in the Sept. 11 attacks.

Analysts expected a sell-off Monday and got one, but they remained optimistic because there wasn't a lot of panic. However, the hope amid calls for a patriotic rally and stock buybacks evaporated as the major indexes skidded throughout the week.

Though panic selling, the worst-case scenario, failed to materialize, so did the rally that a grassroots e-mail campaign had tried to stir up. Messages urged investors not to short airline and other stocks sure to tumble in the wake of the attack, and instead to buy large chunks of shares as a type of "war bond."

Instead, investors have followed a middle path, calmly selling and sometimes opportunity-scouting. Corporate buybacks may have helped support the markets, as technology companies including BEA Systems, Cisco Systems, DoubleClick, Intel and Siebel Systems announced they would purchase large chunks of their own stock.

Tech tumbles
Those buybacks from tech leaders haven't done much more than give some psychological balm to the sector. After the terrorist attack, analysts started warning about weak quarters from software companies and others.

"Widespread pessimism regarding September performance and uncertain December prospects is well founded, and will likely encourage companies to defer deal activity into the next quarter," wrote J.P. Morgan analyst Chris Galvin. "Removing a week of activity in September is especially hard on enterprise software companies, which can typically experience 40 to 60 percent of sales in the final month of the quarter and usually describe (the third quarter) as their most back-end loaded quarter of a given fiscal year."

It's not just the big names that will be hurt; the crisis could "hasten a shakeout that was already going to happen in the software industry," said Needham analyst Richard Davis.

Davis said companies "that have proven unable to make money or who are experiencing sharply lower sequential revenue" may not be able to make it through the downturn, flagging BroadVision, Ariba, Commerce One, Vignette, Vitria and i2 as examples.

Analysts had initially hoped that the storage sector wouldn't be touched that much by the tragedy. Indeed, some speculated that the crisis could help that market, since it would have reinforced the need for backing up important materials.

"This is a sad reminder that storage is strategic," Morgan Stanley analyst Gillian Munson wrote earlier this week. "We think that there will be a lot of focus on strong systems vendors and backup."

But EMC's profit warning and layoff announcement dashed those hopes. Goldman Sachs analyst Laura Conigliaro had already lowered estimates for EMC before the company's announcement "based on the belief that, even prior to the events of Sept. 11, most technology companies were already probably tracking below expectations" for the third quarter.

EMC's problems show that the terrorist attacks are going to have a ripple effect on technology companies.

Aside from wireless stocks, which did well this week, no tech sector emerged unscathed. Online travel companies Priceline.com, Expedia and Travelocity all tumbled as it became obvious that Americans would shy away from air travel for a while.

"We have no ability to predict when traveler confidence will return," said Bailey Dalton, an analyst with C.E. Unterberg Towbin.

Staff writer Sergio Non contributed to this report.

Topics: EMC, Cisco, Dell, Government, Hardware, Storage, Travel Tech

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