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Breaking News

Nasdaq Down 11.2 Percent; Dow Down 2.2 Percent; S&P Down 4.8 Percent

Aired April 4, 2000 - 1:30 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

BILL TUCKER, CNN ANCHOR: And welcome back to our market coverage. That picture -- the good news is that the Nasdaq is off of its lows of the session, but down much sharper than that.

Currently, we are trading 1300 points below our all-time high that was set just back on March 10th.

You know, Patty, before we went to the break, me and Bruce were talking about margin debt, and I actually wanted to toss this to Frank.

We've seen an enormous rise in margin debt. And I'm wondering to what extent that is fueled, a lot of this selling in the market today, Frank?

FRANK GRETZ, SHIELDS & COMPANY: Well, I think it's definitely so. And in February, the margin was up 10 percent, which is to a record level, for example. And 10 percent is a pretty big increase for one month.

And, you know, you have to remember that's all well and good as long as stocks are going up. You don't get a margin call, when your stocks are going up. It's when your stocks start coming down; that's when you begin to have a problem; that's when leverage works the other way, so to speak.

So -- no, we've been in this wonderful bull market in the Nasdaq, and it hasn't bothered anyone; you get to keep borrowing, keep buying, and it's all worked.

But when it turns down, as it has turned now, then there's a problem of forced liquidation: I don't want to sell, but my stocks are down so much I may have to sell.

PATRICIA SABGA, CNN ANCHOR: OK, well, Frank, the Nasdaq is not the only market under pressure this hour. We're also seeing weakness in the Dow Jones Industrial average.

Let's go over to the New York Stock Exchange, where Rhonda Schaffler is standing by, and get a read what's going on with the blue chips -- Rhonda. RHONDA SCHAFFLER, CNN CORRESPONDENT: This has really been a pretty wild hour here. I mean, at this point, we've got the Dow down more than 200. And we're actually going to call this a recovery because the Dow briefly went down 500 points, obviously tracking the free-fall on the Nasdaq.

And we saw, perhaps more significantly, the S&P futures go limit down, second limit-down twice. And at one point, the Standard and Poor's futures contract was down more than 90 points.

Then, what happened about 15 minutes ago -- and there was actually some noise on the floor -- the futures contract, buyers came in; there was some noise on the floor with some relief here; and the Dow has made a very quick recovery from its session lows.

This is still a market that's a mess, though. There has been a huge turnaround in the broader market here. Decliners now lead advancers by about a three-to-one margin. But techs, some of the high fliers, the trouble spots. Financial stocks also showing a lot of weakness.

As far as what's trading higher on the Dow in the midst of the sell-off: a handful of cyclical names are holding on to gains. But we're seeing a complete flight to safety.

The bond market is taken off; a lot of buying there. Gold, for instance, is also higher. So, you've got a flight to safety under way.

But the Dow, though, was able to maneuver itself back from this five-hundred-point mid-afternoon drop.

Some traders on the floor were calling the selling on the Nasdaq, in particular when it was down 13 percent, a panic sell-off. That's not a word they like to throw around easily on Wall Street, "panic." But that's how some traders were calling it.

Trading volume is, as you might imagine, at this point is extremely heavy. We're going to hit a billion shares fairly soon -- Patty, Bill.

SABGA: Rhonda, have you had a chance to get back down on the floor again, now that we see that the Dow is moving off its lows? You mentioned that you heard some of the traders saying the word "panic sell-off," not a world that they like to use. Now, is there a sense now that the lows have been tested and that we're going to see some strength return here for the rest of the day? Or do they think the market could sell off even more brutally?

SCHAFFLER: Yes, I mean, you know, this is one of these days that --the story is not going to be over until the bell rings here. The markets, any time we've seen massive sell-offs, you go through these peaks and valleys, where buyers come in.

But on a day like this, this is not considered that we're out of the woods yet. It's far too early in the trading day to think that. Volume is very heavy.

It's extremely encouraging that the market came back so quickly. But there have been many, many times where the market comes back quickly, only to start selling off again, especially in the final hours, that's when the problems usually start.

A lot of times, people, again, get a case of the jitters. The futures market will stop trading; so then, people are stuck in the cash market; and many of them get nervous and want to start to want to unload their positions.

So, it's far too early to say that we're in that case right now, even as the market is mounting a comeback.

TUCKER: All right, Rhonda. Thank you. Rhonda Schaffler at the New York Stock Exchange.

Frank Gretz of Shields & Company is joining us here on the set.

Frank, let me put it to you: Who gets hurt in this? Do the mutual funds get hurt in this? I mean, where does the damage make itself known?

GRETZ: Well, I think you're hurt if you're in technology; you're hurt, if you're in the Internet; you're hurt, if you have been speculating.

And, you know, as we know, for a long time, the old-economy stocks didn't do very well. You know, they've already been hurt, and they're not hurting so much now.

What is hurting is the new-economy stocks and new-economy players, like the mutual funds invested in those players, like individual investors, day traders, whomever may be invested in those areas.

But I don't think just because financials stocks are down today, for example, that's where the damage is because those stocks have acted quite well. It's not the energy stocks that's hurting anyone today; it's not the bank stocks, for example; you know, it's not the retailers, for example, all of which have begun to act much better. The drug stocks are all beaten up; they're not getting hurt. It's really just in the tech stock, primarily, although everything is down today. I mean, that's primarily where the damage is: in the technology sector.

SABGA: Now, earlier, Bruce was telling us that last month, again, we saw record flows into mutual funds. So, if you're an average investor, you put money into a mutual fund last month, and now you're seeing the sell-off of the kind that we're seeing today. What advice do you give them: Don't panic, sit tight? Or do you think you should start maybe looking at some of the value stocks going forward? What advice are you giving for people who got -- sunk their money into techs last month?

GRETZ: But, remember, they said they were long-term investors. So, if you are a long-term investor -- and you really are a long-term inventory -- I mean, they don't always tell you there are going to be days like this, when you buy a mutual fund, but there are going to be days like this -- so, if you are truly a long term investor, this is not the time you want to sell.

But personally, you know, I think there is a little bit of a change in leadership here. I think we're going back to some of the old-economy stocks; we are going back to financials stocks, energy stocks, and so on.

So, if I was looking for a place to put new money, other than the sharp bounce we're going to see in these tech stocks, I think new money might be better-served looking at some of the value funds.

TUCKER: We've hit quite a run-up in these stocks. I mean, you alluded to this a little bit earlier. But if we're going to buy momentum to the upside, I guess your word of wisdom here is: You've got to buy to the downside, as well, don't we?

GRETZ: Well, actually, I don't like buying weakness, as a matter of fact.

But, you know, if you're going to play momentum, momentum works both ways. And, you know, I would rather wait for a low. I mean, if we make a low in here and a lot of these stocks were up a whole, whole lot, you are going to see them come down, you are going to see them have a sharp rally. But they are not going to run right back to the highs. You're going to have a chance to buy them; you're going to rally. You know, if we make a low today, for example we close on change, let's say, market rallies tomorrow and the next -- over the next week, you're going to get a second chance to be buying some of these good stocks as they come down as much as they have, because they go through this process of making a low, which is a rally and a test of the low, so on and so forth. So it takes time, I think, after the damage we've seen.

GREG CLARKIN, CNN CORRESPONDENT: The -- I am wondering here, too, the momentum players, as they have followed different stocks, they have got -- they got hurt last year on Dell, they got squashed on Qualcomm here. Do you think that money is sort of wrung out of the market here, the momentum guys that have been going from play to play, because there have been no safe harbors today and certainly in the last two weeks?

GRETZ: Well, if anything, I think some of that money may have gone into some of the newer areas, like the financial stocks. I mean, if you look at some of the brokers like Lehman, or if you look at Goldman, some of those areas, I mean, that's been the strength. Now, a lot of stocks have held up in this tech sector. But obviously, today, yesterday, those are beginning to come unglued.

So the momentum-money has to be coming out of those. The momentum- money is still there, which I think it always will be; there's always someone -- there's a trend-follower, called the momentum investor or whatever. Sure, you'll see it go out, then get into some new sectors of today. SABGA: OK, now, you talk a little bit about this momentum-money. But the question on a lot of investors' minds are, especially investors in technology stocks, is: A) If I am invested in one of the big-cap stocks, odds are those are going to come back. And really, which stocks? Or is it just going to get whacked? Which ones are not going to be bouncing back? We've already seen a lot of the Internet stocks really get hammered this year, Internet companies with cash flow problems. Some of them can't go to the markets, or they've been trying to go to the markets to raise more money; a lot of speculation that they won't be able to.

So, let's first of all talk about the sectors that you think are going to, in technology particular, the ones that'll remain under pressure.

GRETZ: Well, you know, it's always a hard thing to say when you talk about just the sector and you talk about aggressive stocks, for example. I mean, look at Procter & Gamble. That's a nice, big, safe Dow stock. You know, that acted as badly as anything's acting right now. So it's hard to know what is safe and what isn't safe all the time in the market, because, you know, we're dealing with stocks here and there's always some risk in buying any stock as we know.

But you know, I think a lot of the stocks that really have paid some dues, like the Dell computer and IBM, a lot of stocks should soon be showing some new leadership in here. I think Hewlett Packard, for example, big, safe stocks like that: It's not just that they're big and safe; these stocks are finally acting better than they have in the last six months.

So while everything else has been kind of going crazy to the upside in a very crazy speculative, kind of bubblesque, way, a lot of -- you know, these stocks still look pretty safe and pretty good to me. I think the stocks, that have come down the most, are the ones you have to look at already as being the most risky, not risky in terms of they're going to come down a lot more, but when a stock gives up a half of two -- none seems a half -- they give up two-thirds of the game they had since October -- I mean, the Nasdaq, I think, has given up -- the average itself has given up a half of its gain since October -- when a stock gives up two-thirds of its gain, it's going to take some time to come back. And I think that's where, after you get that initial rebound, that's when you start to look for something else.

SABGA: OK. Well, you are going to stay with us, Frank Gretz of Shields & Company.

And right now, let's recap. The Nasdaq composite index is down 358 points at 3864. That is, however, well off the low for the session.

TUCKER: It is.

And look at the Dow. The Dow's staging quite a comeback. It's been down more than 500 points at one point; now down just a little over a hundred. It looks a whole lot better from this perspective. We'll continue in market coverage when we come right back.

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