Hit by news of possible layoffs and alleged fraudulent accounting practices among tech bellwethers, investors – already nervous about a slowing economy – dumped technology shares. Blue chips also were not immune to the sell off, finishing sharply lower. The selling spree wiped out a sizeable chunk the year's gains.
With an absence of major economic data Friday, investors focused on corporate news and got scared. Among the headlines, Lucent Technologies Inc. (LU ) is the subject of a formal investigation by federal regulators into possible fraudulent accounting practices at the world's largest telecommunications equipment maker. Shares of Lucent shed more than 8%.
Shares of Dell Computer Corp. (DELL ) also closed sharply lower after a report the personal computer maker may be preparing for layoffs and expense cuts of up to 10% due to weak demand and a price war.
Michael Ward, manager of Global e-Fund, told Standard & Poor's research unit that news from Dell Computer and Lucent Technologies fueled much of the negative sentiment Friday.
"When you have a company like Dell, which announced they are going to lay off a substantial portion of their work force for the first time in history, combined with Lucent having some questions about their accounting practices -- always a bad thing especially for a company that has already had a lot of problems the sentiment becomes very negative," Ward said. "I would say it is dragging the market down."
However, Ward noted some positive news. "The data storage stocks seem to be doing well, more on the heels of Network Appliance (NTAP ). They reported their profits, and it really seems like they haven't been affected by the slowdown," said Ward. "I would say in the absence of this Dell and Lucent news, it probably would have been an up market."
Technology losers included Oracle Corp. (ORCL ) and Microsoft Corp. (MSFT ). Telecoms also stumbled on growth concerns after brokerage comments on Nokia Corp. (NOK ).
While the market ended on a down note Friday, next week may be just as challenging. Federal Reserve Chairman Alan Greenspan is slated to testify on the economy's outlook.
"At the moment, folks just can't get a handle on how deep the economic slump is," said Al Goldman, chief market strategist at A.G. Edwards & Sons, Inc. "They're kind of putting their toe in the water," Goldman added.
The market strategist also said investors were caught in the middle of a tug of war. They know corporate earnings news is negative and will stay that way for a while, but they also acknowledge the economy will recover based on lowered interest rates and a possible tax cut. The upshot: a fragile investor psyche that's playing out in the markets.
Goldman added while he doesn't expect Greenspan's testimony to include any surprises next week, his comments will be widely watched and hold the markets hostage Feb. 12 and 13.
The Nasdaq ended down 91.10 points, or 3.56%, at 2,470.96 – below the psychologically important 2,500 level. The Dow closed off 99.75 points, or 0.92%, at 10,780.80. The S&P 500 finished down 17.92 points, or 1.34%, at 1,314.61.
Treasuries finished higher amid weakness in equities and investors seeking safety and the Federal Reserve's coupon pass.
Stocks in the News
Wireless technology firm Motorola Inc. (MOT ) said it was cutting up to 4,000 jobs in its semiconductor unit as a result of a slowing semiconductor market: Reuters
Housewares retailer Lechters Inc. (WEN ) said it plans to close 166 stores, cut its work force by 30% and switch its focus to sales of higher-quality kitchen products in a drive to return to profitability: Reuters
Wendy's International Inc. (WEN ), operator of the third-largest U.S. hamburger chain, said fourth-quarter profit rose 13.1% before a one-time charge, just beating analysts' estimates even as high labor costs cut into margins: Reuters
Lowe's Cos. Inc. (LOW ), the world's second largest home improvement retailer, said its fourth-quarter earnings will meet Wall Street forecasts but were hit by industry price cuts in the holiday season: Reuters
Saks thinks the luxury market is going sour and has yanked its plan to take the pricey Saks Fifth Avenue stores public. Saks Chairman and Chief Executive Officer R. Brad Martin cited "materially" worse conditions in luxury retailing for backing out of its planned IPO: New York Post
European markets ended lower. The London Financial Times-Stock Exchange 100 index ended down 41.80 points, or 0.67%, at 6,164.30. In Germany, the DAX Index closed down 139.74 points, or 2.11%, at 6,497.07 amid profit taking. Meanwhile, France's CAC 40 finished down 61.10 points, or 1.06%, at 5,712.36.
In Asia, the markets finished mixed. Japan's Nikkei 225 Index closed up 284.60 points, or 2.17%, at 13,422.83, after the Bank of Japan cut its official discount rate to lift its sagging economy. Hong Kong's Hang Seng index, meanwhile, ended down 36.12 points, or 0.23%, at 15,873.28.
With a court order requiring power suppliers to keep electricity flowing for at least another week, California turned its attention to boosting its generating capacity. Gov. Gray Davis unveiled a plan Thursday he said would add enough electricity to power 5 million more homes by summer: the Associated Press
The 47-year-old former Internal Revenue Service employee who was shot outside the White House after a standoff with police faces the possibility of local and federal charges, officials said: the New York Times
Israel's new leader Ariel Sharon met his defeated foe Ehud Barak Friday to discuss forming a coalition strong enough to face a Palestinian revolt: Reuters
By Heesun Wee in New York