Stocks Nosedive On Interest Rate Fears
One argument going into the new year was that a flood of new “January Effect†pension and 401-k money would combine with all of the side-lined Y2K money and take the market to new highs. The counter argument was that profit-taking and interest-rate jitters would drive stocks lower. Two trading days into the New Year, the jittery profit-takers took control and sent stocks into a sharp free-fall.
Stocks collapsed Tuesday as inflation and interest-rate worries continued to weigh on the minds of traders and investors. Helping push stocks lower was news that construction spending for December increased 2.6%, which was significantly higher than the 0.2% that analysts expected. The construction numbers were yet another sign of a red-hot economy that seems to be begging for a rate hike.
Since the bond market has already factored in a 25 basis point rate hike to come out of the February Fed meeting, some analysts have even begun to mention the possibility of a 50 basis point rate hike. The market sank from the open and continued to sell-off through the rest of the session, finishing near its lows of the day.
According to preliminary numbers, the Dow fell 359.58 to 10997.93, the Nasdaq sank 229.92 or 5.5% to 3901.23, and the S&P 500 slid 55.80 to 1399.42.
Most groups finished lower, but those holding up the best were Japanese stocks [$JPN.X>$JPN.X], up 0.5%, consumer stocks [$CMR.X>$CMR.X], down 1.4%, chemicals [$CEX.X>$CEX.X], down 1.3%, and oil services [$OSX.X>$OSX.X], down 1.2%.
The weakest groups Tuesday included broker/dealers [$XBD.X>$XBD.X], down 4.0%, software [$CWX.X>$CWX.X], down 6.7%, banks [$BKX.X>$BKX.X], down 4.2%, Internets [$GIN.X>$GIN.X], down 6.7%, and biotechs [$BTK.X>$BTK.X], down 7.8%.
Financials remained under pressure in Tuesday trading, with US Bancorp [USB>USB], Washington Mutual [WM>WM] and Bank of America [BAC>BAC] hitting 52-week lows. Also under pressure were Citigroup [C>C], JP Morgan [JPM>JPM], Wells Fargo [WFC>WFC], and National Commerce Bancorp [NCBC>NCBC], which all hit two-month lows.
In addition to Citigroup [C>C], stocks dragging the Dow down Tuesday included Hewlett Packard [HWP>HWP], SBC Communications [SBC>SBC], Home Depot [HD>HD], and JP Morgan [JPM>JPM]. Dow stocks showing strength were Disney [DIS>DIS], Phillip Morris [MO>MO], and Du Pont [DD>DD].
Among big-cap technologys, the “Four Horsemen†of the Nasdaq stayed in retreat through the close, with Microsoft [MSFT>MSFT] down 3 15/16 to 112 5/8, Intel [INTC>INTC] down 4 1/16 to 82 15/16, Cisco [CSCO>CSCO] down 6 1/16 to 102, and Sun Microsystems [SUNW>SUNW] down 5 to 71 1/2.
Internets were hit particularly hard, with Amazon [AMZN>AMZN], America Online [AOL>AOL], CMGI [CMGI>CMGI], and eBay [EBAY>EBAY], and Yahoo [YHOO>YHOO] all dropping more than 6% each.
Bright spots in the Internet sector included international Internet portal (India) Satyam Infoway [SIFY>SIFY] which was up 22 to 222. Also, posting solid gains in the Net group were Commerce One [CMRC>CMRC], Go2Net [GNET>GNET], Network Solutions [NSOL>NSOL], and Phone.com [PHCM>PHCM].
Traders now look ahead to Wednesday’s release of the factory orders numbers. Street consensus calls for a 1.1% increase, and the report comes out at 10:00 AM ET.