Call it the Greenspan hangover.
Stocks sold off sharply yesterday -- despite a favorable inflation report -- ahead of a long weekend for traders and the day after Federal Reserve Chairman Alan Greenspan told Congress that the nation's central bank was committed to boosting interest rates still more to slow a sizzling economy and stave off inflation.
"Investors are saying to themselves, 'If the economy is definitely going to slow, then we've got to re-think these [high] stock prices,' " said Paul Christopher, an economist with A. G. Edwards in St. Louis.
Stuck with that gloomy outlook, and going into a long weekend when the stock market will be closed Monday in observance of Presidents Day, many investors likely decided to pare back on stocks so they wouldn't have to spend three days fretting about what other ill tidings next week might bring, several market watchers said.
The Dow Jones industrial average and the broader Standard & Poor's 500 stock index showed their biggest losses in six weeks. The Dow dropped 295.05 points, or 2.81 percent, to close at 10,219.52, as 27 of the 30 Dow stocks closed lower, and the S&P; 500 fell 42.17 points, or 3.04 percent, to 1,346.09.
The Nasdaq composite index, full of key high-technology companies, drooped 137.18 points, or 3 percent, to 4,411.74. On Thursday, the Nasdaq had hit another record high, as investors bet that higher interest rates wouldn't hinder the profitability of the fastest-growing companies in the economy.
For the week, the S&P; 500 lost 5 percent, the fifth week in seven this year that it's fallen. The Dow dropped 4 percent for the week and the Nasdaq 1.6 percent.
Elsewhere on the broad market yesterday, the Russell 2,000 index, a benchmark of small-cap stocks, sank 12.74 to 545.68; the Wilshire 5,000 index plunged 358.41 to 13,124.38; the American Stock Exchange composite index slumped 5.50 to 931.96; the New York Stock Exchange composite index dropped 14.59 to 586.67; and the S&P; 400 midcap index skidded 11.87 to 439.08.
The Sun-Bloomberg Maryland index slid 2.84 to 300.58.
Yesterday's economic reports were typical of the good news/bad news revelations that continue to puzzle the prognosticators who are trying to project how the U.S. economy is going to behave for the rest of this year.
U.S. consumer prices rose a less-than-expected 0.2 percent in January, equaling the pace of the three prior months, the Labor Department said. That was good news: Analysts had expected a 0.3 percent increase.
The "core" Consumer Price Index -- which excludes the often-volatile food and energy prices -- also rose 0.2 percent, after climbing 0.1 percent in December.
"For all the sound and fury about inflation being around the corner, it just doesn't seem to show up," said William Cheney, chief economist for John Hancock Life Insurance Co. in Boston. "Intense competition and productivity are keeping a lid on things."
Contrasting that good-news inflation report was the Commerce Department's disclosure that the U.S. trade deficit for all of last year ballooned 12 percent to a record $271.3 billion.
One other bit of bad news: Workers' average weekly earnings rose 0.6 percent in January, after accounting for inflation, after a 0.1 percent rise in December. That means that wages are accelerating faster than inflation, which Greenspan has said the Fed would be watching for.
Federal Reserve policy-makers have boosted interest rates four times since June in an effort to keep the U.S. economy from boiling over.
Economists are near-unanimous in their belief that the Fed will raise rates again when its policy-making committee meets March 21.
What's less clear is if -- or how many times -- the Fed will tighten credit after that. On Thursday, in one of his twice-yearly economic reports to Congress, Greenspan testified that more interest-rate increases may be needed to keep the economy growing -- but at a sustainable pace.
Among financial stocks yesterday, American Express Co. dropped $10.1875 to $137.75; J. P Morgan & Co. lost $3.75 to $109.125; and Wells Fargo Co. slid $1.375 to $33.5625.
Novell fell $8.9375 to $34.125 after the computer-network software maker said fiscal first-quarter revenue fell short of estimates on weaker sales at the end of the quarter.
Global Crossing sank $8.6875 to $52.375. Its fourth-quarter loss more than tripled and revenue missed some analysts' forecasts.
Intel Corp., the best-performing stock in the Dow this year, fell $4.625 to $105.375.
Cisco Systems Inc. lost $4.6875 to $125.8125. The No. 1 maker of computer-networking equipment has risen 17 percent this year.
International Business Machines Corp. closed down $4.125 to $112.625. Amazon.com Inc. lost $4.50 to $64.75, and America Online Inc. fell $2.125 to $50.875.
SBC Communications Inc. skidded $3.5625 to $6.4375, and Sprint Corp. fell $2.4375 to $63.25.
International Paper Co. lost $1.875 to $40.625, helping to drag the Dow lower, and Georgia-Pacific Group dropped $2.6875 to $35.0625.
Millennium Pharmaceuticals Inc. sank $41.4375 to $273.125, leading the Russell's decline.
Synopsys Inc. plunged $8.9375 to $37.5625 after telling analysts that its revenue growth will slow this year to 12 percent from 20 percent.
Brocade Communications Systems Inc. jumped $32.25 to $275.875. The networking-equipment maker, which went public in May, announced a 2-for-1 split and reported earnings that beat forecasts.
Symix Systems Inc. soared $6.625 to $24.25 after the maker of business operations software said it will team with Commerce One Inc. to create an Internet-purchasing site. Commerce One fell $10.25 to $179.