Nasdaq’s worst ever show, plunges 39.28 pc in 2000

The Nasdaq Composite Index on Friday slid 87.24 points, or 3.41 per cent, to 2,471.30, in heavy trading with more than 2.5 billion shares changing hands. The blue-chip Dow Jones Industrial average lost 81.91 points, or 0.75 per cent, to 10,786.85, after a late-day selloff wiped out an earlier advance of nearly 50 points. Losses were concentrated in financial, technology and industrial stocks, but keeping a floor under the blue chips was some buying in defensive sectors like pharmaceuticals and retailers.

For the year, the Dow has fallen about 6.2 per cent, the worst year since a 9.2 per cent drop in 1981. The benchmark Standard & Poor’s 500 index on Friday closed down 13.94 points, or 1.04 per cent, at 1,320.28. In 2000, the S&P 500 shed 10.1 per cent, the worst year since 1977’s 11.50 per cent drop.

Pain hits home on main street:

Investors blinded by the lure of instant riches in a BraveNew World elbowed their way for a slice of the cyber-dollar pie, snatching up sizzling tech stocks at any price. But the Internet bubble burst soon afterwards and it was downhill from there on as the gloom over slowing corporate growth snowballed. Starting with the Internet retailers, the axe of reality whacked away sector by sector, finally hitting the behemoths of the digital revolution, which tumbled from year highs.

The painful Nasdaq correction shaved off more than $ 3 trillion of market value from companies traded on that market, home to the world’s largest high-tech firms, in the slide from its record close of 5,048.62 on March 10.

Casting a pall over Wall Street this year were the "FourE’s": skyrocketing oil prices drove energy costs up for many companies; the euro’s weakness against the dollar, which ate into the profits of multinationals; a slowing US economy and a decline in corporate earnings growth after six interest-rate hikes from June 1999 through May of this year. Thrown into the mix later was the five-week US presidential election debacle late this year, with the uncertainty also adversely affecting market sentiment. The shock waves spread from Wall Street to every corner of Main Street this year.

The millions of Americans lured to the bull market of the 1990s saw portfolios turn anemic over the past nine months as the Nasdaq got clawed by a bear – the first time that some investors had seen a bear market. And no respite is in sight.

Investors were taken on a roller-coaster ride with this year’s wild swings. The Nasdaq composite posted some its biggest point and percentage gains and losses during 2000. It had its largest point and second-largest percentage decrease this year when it fell a whopping 355 points, or 9.67 per cent on April 14. In percentage terms that was second only to the 11.35 per cent dive the Nasdaq took during he 1987 crash.

On Black Monday, October 19, 1987, the major US stock market indexes went into free fall, and the chill reverberated globally. "In October 1987, it was an institutional trauma with someretail (investors) thrown in; now it’s a lot more of a public trauma, but with institutions suffering also," Riley said. "The Crash of 1987 was of the totally unexpected variety, whereas the Crash of 2000 within Nasdaq has been progressive, with lower-quality companies breaking down first and higher quality last, but the duration has been nine months," added Riley, who still sees a little more downside risk to Nasdaq.

Investors are hoping the US Federal Reserve will trim interest rates early next year, in order to stop the US economy from slipping into recession. A rate cut would help drive up stock prices because it would ease companies’ borrowing costs.

But looming large over the Street, and Nasdaq in particular, is the darkening profit outlook for high-tech companies across the board. Stalwarts like No 1 computer chip maker Intel Corp, software giant Microsoft Corp and personal computer maker Apple Computer have warned investors that Financial results will sag.

The good, the bad and the ugly: For some sectors, earnings just rocketed off the chartsduring the year, and investors were handsomely rewarded. Topping the list for 2000 were energy companies, whose fortunes rose in line with soaring oil prices. But investors fleeing the tech massacre also found a home in defensive sectors like tobacco and drugs and areas once relegated to the pariah -list like utilities. Red-hot natural gas prices continue to climb, promising even more earnings upside for companies like Dynegy Inc, up 360 percent for the year, which makes it the best performer on the S&P 500.

But it’s an entirely different scenario in tech land. With the landscape littered with anemic DOT-coms and theshells of those that went belly up, the American Stock Exchange Internet index is off over 50 per cent for the year.

"It’s not the first time when a new sector is born withinthe economy. We saw this in the 1990s with the biotechs, and lo and behold, the end of that came," said Peter Cardillo, director of research at Westfalia Investments. "You always have speculative bubbles, and those are bound to burst."

WHAT OF 2001?: So will the humbled Nasdaq rise like a Phoenix from theashes at the mathematically correct start of the new millennium? Don’T count on that any time soon, many experts warn.

The world’s largest economy should flirt with recession next year, some say. US economic growth will dip to below 1 percent for the first half of 2001, although it is projected to rise 1.8 percent for the year — down sharply from a gain of 5.1 per cent this year, JP Morgan economist Bruce Kasman said. "In and around (Nasdaq) 3,000 is certainly achievable; 4,000 at this point is a dream, but in and around 5,000 is pure insanity," said Barry Hyman, chief investment strategist with Weatherly Securities.