U.S. stocks dive to fresh multi-year lows

NEW YORK (CBS.MW) -- The stocks indexes hit fresh multi-year lows on Wednesday, slammed by a gaggle of Wall Street analyst downgrades and ongoing worries about profit growth ahead of the official start of the third-quarter reporting season.

"You're seeing a lot of emotional selling," said Peter Boockvar, equity strategist at Miller, Tabak & Co. While the strategist feels stocks are dramatically oversold over the short term, he acknowledged that they could stay that way for some time.

"Unfortunately this market is psychologically sick. There are absolutely no buyers so sellers are having a field day. The market is discounting all sorts of negative scenarios and stocks are being trashed globally," remarked Peter Cardillo, chief investment strategist with Global Partner Securities.

Glum analyst comments in the drug and airline sectors had a dampening effect on shares, with an earnings reaffirmation from Merck (NYSE:MRK - News) failing to lift spirits. The utility, bank and brokerage sectors were also big decliners and losses for financials accelerated after Moody's downgraded Dow component J.P. Morgan Chase.

And retail stocks failed to follow through on Tuesday's rally following news that a federal judge OK'd President Bush's request to order the reopening of West Coast ports and temporarily put an end to a costly lockout.

In the tech sector, Cisco was finally able to attract buyers after five sessions of unrelenting selling following an upgrade.

The Dow Jones Industrial Average (CBOT:^DJI - News) ended right around session lows, surrendering 215 points to 7,286. General Motors, Boeing, General Electric, Hewlett-Packard, Johnson & Johnson and Merck were among the biggest decliners while Intel, Philip Morris and Exxon Mobil escaped the carnage.

The Nasdaq Composite (NasdaqSC:^IXIC - News) gave up 14 points to 1,114 while the Nasdaq 100 Index (NasdaqSC:^NDX - News) eased 3 points, or 0.5 percent, to 807.

The Standard & Poor's 500 Index (CBOE:^SPX - News) relinquished 2.7 percent while the Russell 2000 Index (CBOE:^RUT - News) of small-capitalization stocks plunged 3.9 percent.

Volume came in at 1.80 million on the NYSE and at 1.72 billion on the Nasdaq Stock Market. Market breadth was horrific, with losers defeating winners by 28 to 5 on the NYSE and by 26 to 9 on the Nasdaq.

Goldman lowers S&P, Dow targets

Goldman Sachs' chief investment strategist Abby Joseph Cohen lowered her 12-month target on the Dow industrials (CBOT:^DJI - News) to 10,800 from 11,300 and the S&P 500's (CBOE:^SPX - News) to 1,150 from 1,300.

Still, the new targets represent upside of 43 percent and 44 percent, respectively, from current levels. And despite the target trimming, Cohen claims that stocks are undervalued based on her dividend discount model.

"We think that share prices already reflect ugly scenarios and that the large risk premium embedded in share prices provides a cushion," she told clients.

The well-known strategist does not expect a double-dip recession scenario to play out and feels that the "worst is past," with profits moderately rising and "looking cleaner." Cohen acknowledged that higher investor risk aversion will take longer to dissipate but predicts it will decline within the next 12 to 18 months.

GE declines; financial, airline, drug stocks under pressure

Dow stock General Electric (NYSE:GE - News) moved 6 percent lower after Morgan Stanley cut its 2003 earnings estimates on the stock, citing worries over continued weakness in the industrial giant's short-cycle business, deterioration in its power and aerospace businesses and losses in GE Capital's portfolio. GE will be the second Dow stock to unveil its results. It will do so on Friday. See story.

Moody's Investors Service cut its long-term credit rating on Dow component J.P. Morgan Chase (NYSE:JPM - News) to reflect concerns regarding the medium-term outlook for the banking giant's business performance. Shares lost 6.9 percent. And American Express (NYSE:AXP - News) declined 3.9 percent after Bear Stearns sliced its second half of 2002 and 2003 estimates on the Dow component.

Merck (NYSE:MRK - News) fell 1.3 percent after rising briefly following an earnings reaffirmation for the third quarter and for 2003. Earlier in the session, Raymond James had downgraded Merck to a "market perform" from a "strong buy" on expectations the drug titan would warn of an earnings shortfall.

And US Bancorp Piper Jaffray downgraded Dow component Johnson & Johnson (NYSE:JNJ - News) to an "outperform" rating from a "strong buy," sending shares 4 percent lower. The firm cited valuation worries due to recent appreciation in the drug behemoth's shares. US Bancorp believes J&J is now the "single most expensive" U.S.-based large-cap pharma company.

On the earnings front, Abbott Laboratories (NYSE:ABT - News) posted a third-quarter profit that was in line with expectations but announced restructuring plans that would lead to a 3-percent workforce reduction. Looking ahead, the drug maker expects fourth-quarter earnings to be in line with current expectations. Shares put on 2.4 percent in recent trades.

Airline stocks tumbled after CS First Boston lowered its view on the airline sector (AMEX:^XAL - News) to a "market weight" from an "overweight" on worries over the impact of a potential war with Iraq on earnings and cash flow, among other things. Individually, the firm took down its view on AMR Corp. (NYSE:AMR - News) to a "neutral" from an "outperform." AMR plunged 16.6 percent while fellow carriers Continental and Delta slumped 15.5 percent and 10.7 percent, respectively. See airline sector story.

The automakers came under assault after Lehman Bros. came out with a glum note on General Motors (NYSE:GM - News) , sending its shares down 7.5 percent. Lehman lowered its free cash flow forecast for GM over the 2003 through 2006 period by $4.5 billion due to the diminished value of its Hughes stake and the expected drain from the anticipated acquisition if Italy's Fiat. Fellow automaker Ford tumbled almost 9 percent. See story on autos.

In the brokerage sector, Banc of America Securities lowered its third-quarter, 2002 and 2003 profit estimates on brokerage powerhouse Merrill Lynch (NYSE:MER - News) . B of A believes revenue weakness at Merrill will overpower expense progress and that progress in margin expansion is unlikely to surface in the current "extremely difficult" revenue quarter. Merrill shares declined 4.5 percent while Morgan Stanley slid 5.7 percent and Lehman eased 4.4 percent.

Shares of machinery companies also declined after Salomon Smith Barney issued a cautious note on the sector. The brokerage took the hatchet to its earnings and price targets for Dow stock Caterpillar (NYSE:CAT - News) as well as to United Rentals (NYSE:URI - News) on deteriorating construction equipment fundamentals. CAT shares fell 6.1 percent and United Rentals 3.4 percent. See The Ratings Game.

Retail issues dropped significantly a day after rallying on the temporary resolution to the port lockout on the West Coast. Best Buy (NYSE:BBY - News) was a big decliner, relinquishing 11.3 percent after Merrill Lynch trimmed earnings estimates on the stock, citing less robust spending trends on higher ticket items. See related story.

Sara Lee (NYSE:SLE - News) spiked 7.7 percent after telling investors late Tuesday that fiscal first-quarter earnings would come in well ahead of expectations. Salomon upped its view on the stock following the news to an "in-line" from an "underperform."

But General Mills (NYSE:GIS - News) fell 3 percent after CS First Boston downgraded the company to a "neutral" from an "outperform."

Cisco snaps losing streak; Corning rallies

Tech bellwether Cisco Systems (NasdaqNM:CSCO - News) snapped a five-day losing streak and headed 8 percent higher. The networking kingpin has been the target of many Wall Street analysts, which have lowered their earnings estimates on the stock in recent sessions. But on Wednesday, Needham upped Cisco to a "strong buy" from a "buy," noting that the stock's sell-off has created "more than enough potential gain" to justify an upgrade. The firm also pointed to Cisco's dominant market position and impressive new product flow.

Another bright spot in the tech sector was Corning, which surged 12.7 percent after backing its third-quarter financial targets. Still, the company acknowledged that continued difficulty in the telecom sector would lead to a restructuring that'll result in more layoffs. The fiber-optic firm (NYSE:GLW - News) also said it may sell or discontinue some non-core assets, close plants and consolidate manufacturing capacity. See story.

UBS Warburg lowered its 2002 earnings-per-share estimate on SBC Communications to reflect continued weakness in the economy and expected softness in its wireless results. On Tuesday, the Dow component (NYSE:SBC - News) said it was comfortable with Wall Street's full-year profit target. SBC shares shed 1 percent.

Treasurys log hefty gains

Government bonds remained well bid across the board as fixed-income investors reacted to more troubles for equities.

No data are scheduled for release on Wednesday in the third straight session devoid of economic news. Friday will be the big day for data-hungry investors, with September retail sales, the Michigan consumer sentiment index and the September producer price index on tap.

In the currency sector, the dollar weakened against its chief rivals, reflecting more bruising declines in the equity market. The buck lost 0.8 percent to 123.25 yen while the euro rallied 1.1 percent to 99.01 cents.

DOW 7,000 ... NASDAQ 1,000 I imagine ... that's what I've been thinking for about 3 months or so ...

And Paul O'Neil thinks our No. 1 economic concern is resolving the terrorist insurance matter. Hello, Paul, is anybody home up there?

Good luck,

Don't look for a snap back. I'd say in most years you would probably get a good return buying in Oct and selling in Feb. Probably this year too as we will have a rally when the war "officially" starts. But this war could get violent in the USA so who knows.

I do know the perma bulls are getting trounced this go round. Never before have the markets pulled back in the face of increasing money supplies. Something odd is happening.

I'm old enough to remember 1973==>1982. If you were fully invested in Jan. '73, you didn't break even until the early 80's.

I'm not sure I can wait 10 or 12 years this time...

If the Democrats win the upcoming elections, all sorts of bad things will happen. Taxes will go up, again, the AMT will not be cut back, etc.

If the Pubbies win (bigtime), I am back in the market, I think.

the beginning of the war will trigger a rally? ... I seriously doubt it ... oil prices will skyrocket initially ... if it's resolved quickly, then the market will experience a small rally ... there are too many unknowns ... but a jumping stock market when a war opens is not likely ...

I wouldn't mention the AMT here. A thread got pulled a couple of days ago because someone mentioned that Ronald Reagan had signed that law. (At least "Thanks Ronnie" was the last comment on the thread before it got pulled.)

"I do know the perma bulls are getting trounced this go round. Never before have the markets pulled back in the face of increasing money supplies. Something odd is happening."

Well, uhm...er...I am hedging that bet with Bonds, and Precious Metals,...but otherwise I'm real Bullish!

Maybe you can answer this question. The story said that sellers are having their way because there were no buyers. If people are selling, doesn't there have to be, by definition, buyers?

"the beginning of the war will trigger a rally? ... I seriously doubt it ... oil prices will skyrocket initially ... if it's resolved quickly, then the market will experience a small rally ... there are too many unknowns ... but a jumping stock market when a war opens is not likely ..."

I'm looking forward to those higher Oil prices to make my Exxon Mobil stock go back up! The rest of the Market will rebound when we start rebuilding Iraq!

Even if you do wait, consider the inflation. Any "break even" is not really a break even in an inflationary economy. That is to say, if your portfolio is X in '73, and goes down and back up to X in '82, adjust for inflation and see how much purchasing power you have lost.

"Maybe you can answer this question. The story said that sellers are having their way because there were no buyers. If people are selling, doesn't there have to be, by definition, buyers?"

HA! You'd think so!!That's great!!! LOL!!!!!!

AMT is the "alternative minimum tax". Basically, even if all your deductions are legal, you still end paying more in taxes. Due to inflation and changes in tax laws, the AMT, which was targeted for high earners, is now hitting some people in the middle class.

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