12/16 11:02 Slide Hurts More Than Technology Shares: U.S. Stocks Outlook By Deborah Stern

New York, Dec. 16 (Bloomberg) -- Forget the plunge in technology stocks -- this year's stock rout runs much deeper.

As the economy has slowed and U.S. companies have cut their profit forecasts, the majority of the 87 industry groups in the Standard & Poor's 500 Index have declined.

Casualties outside the computer and telecommunications industries include Federal-Mogul Corp., Pacificare Health Systems Inc., Crown Cork & Seal Co., Rite Aid Corp. and Circuit City Group -- all of which have fallen at least 75 percent.

``Changes in interest rates and inflation affect purchases of autos, personal computers, large appliances,'' said Brad Kinkelaar, who helps manage the $1.6 billion Thornburg Value Fund in Santa Fe, New Mexico. ``If I decide I'm not going buy my new Ford Explorer this year, that's going to affect steel manufacturers and consumer finance companies too.''

The S&P Technology Index has fallen 33 percent this year, the biggest drop of the 11 ``economic sectors'' in the S&P 500. The S&P Consumer Cyclicals Index isn't far behind with a 26 percent drop, while the S&P Basic Materials Index is down 23 percent.

The non-technology companies with the biggest stock declines face a range of problems.

Slow Sales, Asbestos

Auto-parts maker Federal-Mogul has sunk 90 percent this year amid slow sales of replacement parts and claims of asbestos liability from its 1998 purchase of T&N Plc, one of the biggest makers of the cancer-causing building material.

Pacificare dropped 75 percent as the biggest U.S. operator of Medicare health plans has struggled to cut costs amid rising medical expenses.

Circuit City lost 77 percent as the electronics retailer cut prices more than expected to compete with rivals.

``All of these companies are also being hurt by the slowing economy,'' said Jim Grefenstette, who manages the $1.6 billion Federated Growth Strategies Fund in Pittsburgh. Grefenstette, whose fund has lost 19 percent year to date, recently bought shares of Anheuser-Busch Cos., Philip Morris Cos., Eli Lilly & Co. and Pfizer Inc., all of which have risen this year.

For the week, the Nasdaq Composite Index, which is two-thirds computer and telecommunications stocks, fell 9.1 percent, the S&P 500 lost 4.2 percent and the Dow Jones Industrial Average lost 2.6 percent. The Nasdaq has slumped 35 percent year to date, the S&P 500 is down 11 percent and the Dow is 9.2 percent lower.

Technology's Slide

This year's slump in computer-related stocks has gotten more attention than have declines in other industries because technology's drop has been the most dramatic. The Nasdaq has fallen 47 percent from its March 10 peak, knocking $2.62 trillion off its market value.

This week, though, none of the four worst performers in the Dow were in the technology industry.

Honeywell International Inc. slid 12 percent after the biggest maker of automated controls said profit will be lower than forecast. Coca-Cola Co. fell 12 percent, home-improvement retailer Home Depot Inc. lost 11 percent and General Electric Co., which has agreed to buy Honeywell, dropped 9.7 percent.

The S&P Transportation Index had the biggest loss of the S&P 500's 89 industry groups, 15.9 percent, after FedEx Corp. cut its profit forecast because U.S. shipments are lagging.

The S&P Computer Systems Index lost 15.6 percent as EMC Corp. fell on analyst concern that sales growth is slowing and Sun Microsystems Inc. delayed shipping a new line of products.

``There was a high degree of comfort'' among investors about corporate earnings earlier this year, Grefenstette said. ``Everyone swore their growth projections were going to be met. Suddenly it's all very cloudy.''

In the first quarter, analysts were forecasting the companies in the S&P 500 would post profit growth of as much as 23.6 percent this quarter.

On Oct. 1, that estimate had fallen to 15.6 percent, and analysts since have slashed the forecast to 7.8 percent, according to First Call/Thomson Financial. That would be the slowest growth since the fourth quarter of 1998.

Winners and Losers

Profit or revenue shortfalls drove several stocks lower this week.

Microsoft Corp. lost 9.6 percent this week, dragging down computer-related shares, after the software maker cut its profit and sales estimates for the first time in more than a decade.

Home Depot fell percent after analysts said the world's largest home-improvement retailer may miss fiscal fourth-quarter earnings estimates because of lower lumber prices and the slowing U.S. economy.

CMGI Inc. sank 31 percent after the operator of Internet companies said its fiscal first-quarter loss rose more than fivefold as it sold stakes in money-losing startups.

Xerox Corp. posted the best performance in the S&P 500 this week, gaining 32 percent, after having lost 75 percent year to date. The largest copier company agreed to sell its China operations to Fuji Xerox Co. for $550 million, giving the company much-needed cash as it attempts to cut costs and lift profit.

Lucent Technologies Inc., the world's largest maker of phone equipment, jumped 15 percent on speculation that Nokia Oyj of Finland will buy the company. Lucent had fallen 74 percent this year.

Fed Meeting

Federal Reserve policy-makers meet Tuesday, and investors said the central bank probably won't lower interest rates. Still, stocks could get a boost if the central bankers drop their warning that inflation is a bigger risk to the economy, the first step to a rate cut, analysts say.

The prospect of falling rates would be good news for corporate profits, said Charles Reinhard, a U.S. equity strategist at Lehman Brothers Inc. Investors could step in to buy because ``our models are showing us that the market is cheap after being overvalued earlier in the year,'' he said.

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-- Carl Jenkins (somewherepress@aol.com), December 16, 2000