Stocks fell Monday, led by technology bellwethers, amid concerns that the profits of even the most solid companies will suffer because of slowing economies around the world.
It didn't help that leaders of the world's leading economic powers couldn't come up with solid proposals over the weekend to prevent economic wildfires from spreading to relatively healthy economies.
But the biggest worry was whether companies like Cisco and PeopleSoft -- two of the fastest growing companies in the past decade -- can continue their growth rates in the face of a global slowdown.
"We are focusing on third-quarter earnings amid the pre-announcements, and I think they are going to hit on the tech stocks," said Courtney Smith, chief investment officer at Orbitex Management. "It's being triggered by concern about a long-term slowdown in the economy."
The Wired Index dropped 14.80 to 345.12. The Dow fell 63.34 to 7721.35, after being down as much as 233.01 points during the day.
Over the weekend, economic ministers of the G7 economic powers met in Washington for the annual meetings of the World Bank and International Monetary Fund to try and figure out how to save their economies from deep recessions. They agreed in principle that they had to do something, but couldn't figure out what. They couldn't agree, for example, over whether capital flows should be regulated.
On top of that, investors grew increasingly wary about the earnings prospects of tech companies that have fueled the growth of the US economy in recent years.
Cisco, the world's biggest computer networking company, led the decline among tech stocks. Analysts said it's clear companies are slowing spending on infrastructure equipment. Already, rivals like Nortel Networks and Alcatel have warned of slowing revenue growth in coming months. SG Cowen analyst Christopher Cox cut his rating on Cisco to "buy" from "strong buy." In his report, Stix wrote that a recent survey conducted by his firm found that several companies said they would reduce spending on networking equipment, threatening Cisco's long-standing goal of growing faster than the rest of the networking industry.
Investors also were unsettled by a Federal Trade Commission investigation into Cisco's business practices. Cisco executives met counterparts at Nortel and Lucent Technologies this summer. The FTC is investigating whether Cisco tried to get the other companies to collude in splitting up the networking market amongst themselves. Cisco's general counsel denied the allegation and said the companies were only trying to improve products.
Cisco (CSCO) fell US$7.44, or 13 percent, to $48.31 on trading of 64 million shares -- more than three times its daily average of 18.4 million.
PeopleSoft, one of the biggest publishers of business software, fell dramatically for a second day. On Friday, analysts at Morgan Stanley Dean Witter and rival investment bank Goldman, Sachs said the software company appears to be cutting its product prices heavily to compete with SAP AG and to keep its revenue growing. The price cuts, however, likely will cut into PeopleSoft's profits, analysts said. Until last week, PeopleSoft had been one of the few companies thought to be immune to price competition in the PC industry.
PeopleSoft (PSFT) declined $3.56 to $20.75.
Microsoft, Intel, and Dell -- whose stocks reflect the health of the software, semiconductor, and PC industries, respectively -- also were hammered. Slowing economies in the United States and abroad means less spending on PCs, software, and their electronic innards. Microsoft (MSFT) fell $2.94 to $101.19, Intel (INTC) lost $3.31 to $80.56 and Dell (DELL) dropped $5 to $57.69.
America Online (AOL), the world's biggest online service provider, declined $4.19 to $103.
Declining financial markets also is bad news for Reuters Group (RTRSY), which leases financial terminals to banks and brokerages. As banks consolidate or go out of business, Reuters would have fewer potential customers, analysts have said. Monday's turmoil drove Reuters' stock down $3.25 to $43.13.
Charles Schwab (SCH), another business dependant on the health of financial markets, fell $2.69 to $36.56.
AMR (AMR), the parent company of American Airlines, dropped $2.19 to $51.50, even though the company said it would expand its existing frequent-flyer agreement with US Airways.
The Nasdaq, home of some of the biggest technology stocks, dropped 78.29 to 7726.24. The S&P 500 lost 14.04 to 988.56.
Financial columnist David Lazarus is on vacation. Reuters contributed to this report.
