Latest bear market may yet plumb new depths

After officially entering bear market territory on Monday for the first time since 1987, Wall Street ventured in and out of negative…

After officially entering bear market territory on Monday for the first time since 1987, Wall Street ventured in and out of negative territory yesterday with battered technology stocks such as Intel, Microsoft and Cisco Systems making a modest recovery.

A late afternoon rally gave the market a respite, with the Nasdaq Composite Index climbing 91.43 points, or 4.75 per cent, to close at 2,014.81.

The Dow Jones Industrial Average added 81.58 points, or 0.80 per cent, at 10,289.83 while the Standard & Poor's added 17.38 or 1.47 per cent to close at 1,197.54.

The market was helped in early trading by a Commerce Department report showing that sales at American retailers fell by 0.2 per cent in February, the first drop in three months and an encouraging sign for investors who hope that the Federal Reserve will cut the basic lending rate next week to boost the economy.

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The weakness was led by a sharp decrease in sales at furniture and home furnishing stores and at bars and restaurants. But February's drop was exaggerated because it followed a surprise 1.3 per cent increase in sales in January, according to revised figures.

The hope of a rate cut was bolstered by a fall in household net worth last year for the first time in at least 55 years, according to a report based on Federal Reserve Board statistics.

The 2 per cent fall in total assets, such as houses and stocks, minus total liabilities, such as mortgages and credit-card debts, could dampen consumer spending.

By the accepted definition of a bear market - a 20 per cent decline for its high - the Standard & Poor index of the performance of 500 widely-held stocks showed that on Monday Wall Street became a bear market for the ninth time since the index was established in 1926.

Few analysts were willing to predict that the market has bottomed out, despite Monday's steep fall of 436 points on the Dow Jones industrial average, the fifth-worst point drop on record, which wiped $500 billion (#547 billion) from the value of stocks.

By historical standards there is more room to fall, according to the Wall Street Journal.

Stock valuations based on depressed corporate earnings remain at historically high levels.

Earnings have been falling faster than prices, and price-earnings ratios have been going up rather than down.

The Standard & Poor companies' average price-earnings ratio, the measure which gives investors an idea of how much they are paying for a company's earning power, is now 24, but at the end of the last bear market in 1987 it stood at 12.

Motorola, the world's second-largest mobile phone manufacturer, said yesterday it was cutting 7,000 jobs worldwide, or 5 per cent of its 140,000 workforce, in addition to 5,000 cuts announced in December, because of soft market conditions.

The reductions will be in mobile phone operations and "will affect all aspects of the business, across all geographies, and are expected to be completed in the next two quarters," the company said. "Unfortunately, this was a necessary next step for us to achieve renewal and stay competitive in today's dramatic business environment, particularly given the current slowdown in the economy," said Mr Mike Zafirovski, president of Motorola Personal Communications Sector.

"We anticipate growth, but at a slower pace."

On Monday Ericsson, the number three maker of mobile phones said it expected to make a $400-$500 million loss in the first quarter and that year-on-year sales in the quarter would be flat instead of rising 15 percent as previously expected.