Stocks Slide Amid Seasonal Fears

Stocks slumped sharply Wednesday in the wake of Cisco Systems’ weak earnings and a downbeat economic report, but some analysts are pointing to another culprit: fear of the calendar.

September and October are the weakest months of the year for stocks historically, and October in particular brings back many bad memories for investors.

With the Dow Jones industrial average off 165.24 points, or 1.6%, to 10,293.50 on Wednesday, and the Nasdaq composite index down 61.43 points, or 3%, to 1,966.36, some investors may be figuring the sidelines are the safest place to be until late October or early November, when evidence may be stronger for the hoped-for turnaround in corporate profits in 2002.

Since 1971, the Dow’s worst three months of the year have been September, August and October, in that order, according to the Stock Trader’s Almanac.

Nasdaq’s worst months have been October and September, in that order, in terms of average percentage loss since 1971. Also, Nasdaq fell in October in 16 of the 30 years between 1971 and 2000, the worst record for any month.

In 2000, the market rebounded in August from its spring plunge, then went into a deep, technology-led swoon starting Sept. 2.

Though analysts debate why the market shows seasonal tendencies, the trends have been striking in the post-World War II era. Since 1950, a $10,000 investment in the Dow stocks made on Nov. 1 of each year and cashed out on April 30 of the following year would have generated a $415,000 total profit, said Yale Hirsch, author of the Stock Trader’s Almanac.

By contrast, investing $10,000 in the Dow solely from May 1 through October of each year since 1950 would have produced a total profit of $1,700, Hirsch said.

The seasonal disparity has gained increasing notice in recent years, and Hirsch said brutal October stock sell-offs such as those in 1987 and 1998 remain vivid memories for many investors.

With corporate earnings warnings and other bad news piling up, this summer has been typically jittery, Hirsch said.

“This is the kind of market people are afraid to stay in over the weekend,” he said, noting that the Dow has fallen for three straight Fridays. “In better times they would get back in on Monday” after such declines, he added. Instead, the Dow’s last three Friday losses have been followed by Monday declines as well.

Though the Dow is off only 4.6% year to date, the broader Standard & Poor’s 500--which sank 20.87 points, or 1.7%, to 1,183.53 on Wednesday--is now down 10.4% in 2001 and the Nasdaq is off 20.4%.

The growing sense of pessimism can be seen in the latest weekly survey of market newsletter editors by Investors Intelligence in New Rochelle, N.Y. The percentage of editors who consider themselves bullish dipped to 46% in the newest poll from 46.4% the week before and 52.5% in mid-July.

Newsletter optimism had reached a 14-year high of 61.8% on Feb. 2.

Many analysts view increasing newsletter pessimism as a “contrary” indicator--meaning that declining bullish readings often presage stock rallies.

But bullishness also was declining in August 2000, leading up to the September market dive.

Some analysts argue that the stock market is faring relatively well this summer.

“This market has actually held up pretty well in light of all the lousy news,” said Bill Ryder, chief quantitative strategist at First Union Securities.

He also noted that federal income tax rebates totaling about $3.8 billion a week over the next 10 weeks are expected to boost consumer spending, which could help the wobbly U.S. economy.

Still, from a technical standpoint, Ryder said the S&P; 500 could be on the verge of testing a so-called support level at 1,173. If the blue-chip index were to fall below that mark--which represents a two-thirds “retracing” from its most recent meaningful rally--it easily could retest its two-year low of 1,103 reached April 4, Ryder said.

But so far, he said, support levels for the major indexes have held, however tenuously. The Nasdaq composite, for instance, is less than half a percentage point above its late-July low of 1,959.

One factor contributing to the latest market slide could be redemptions by stock mutual fund investors.

Investors yanked a net $14.7 billion from U.S. stock funds in July, the first monthly outflow since March, according to an estimate from TrimTabs.com Investment Research. Growth-stock funds and aggressive-growth funds saw the biggest cash outflows, TrimTabs said, reflecting the latest tech-stock decline.

Among Wednesday’s market highlights:

* Cisco sank $1.28 to $17.98 after the networking giant late Tuesday reported a 25% sales decline in its fiscal fourth quarter and said fiscal first-quarter sales could fall shy of analysts’ forecasts.

A broad swath of tech stocks fell, including Intel, down $1.01 to $29.61; Microsoft, down $1.49 to $64.86; Juniper Networks, down $2.43 to $23.47; Siebel Systems, down $3.78 to $30.69; Veritas Software, down $4.19 to $38.99; Ciena, down $3.52 to $30.88; and Brocade Communications, down $4.24 to $33.70.

BEA Systems declined $2.76 to $19.79 and Agilent Technologies dropped $2.08 to $28.95 on negative analyst reports from Prudential Securities and Lehman Bros., respectively.

* Other weak sectors included biotech, oil field services, utilities and brokerage shares.

* There were signs of life in the retail industry, as Lands’ End rallied $1.74 at $36.90 after beating quarterly earnings expectations, and Polo Ralph Lauren gained $1.95 at $25.10 after meeting forecasts and reaffirming its projections for the rest of the fiscal year.

* In the Treasury market, longer-term note and bond yields tumbled as the latest Federal Reserve report on the economy suggested the central bank might again cut short-term interest rates.

Also, the Treasury sold $11 billion in 10-year notes at a yield of 5.08%. The auction saw the most aggressive demand by buyers in eight years.

Market Roundup, C7, C8