Election Section

NEW YORK — Investors who thought the resolution of the presidential election would set off a rally on Wall Street found themselves instead in the midst of a huge selloff. 

The negative reaction had nothing to do with the election of George W. Bush. Instead, analysts said, the market’s plunge this past week was all about disappointing earnings predictions, particularly one from Microsoft, and investor fears about the economy. 

“The fundamental problem is that people are very concerned about the possibility of a recession in 2001, although I don’t see one happening,” said Jack Shaughnessy, chief investment strategist at Advest Inc. 

“But all this bad news from computer stocks has affected a lot of people. Of the retail clients I advise, I’d bet a third to a half of their assets are in technology stocks, so these warnings have really hurt them.” 

That news was initially greeted warmly – even if it meant companies might not make as much money as they had during the previous year. After six interest rate increases by the Federal Reserve to slow unsustainable economic growth and stave off inflation, investors were optimistic that more hikes might not be necessary. 

But a series of warnings, first about companies’ third-quarter profits and in the past few weeks, about fourth-quarter results, has spawned a series of selloffs. High-tech was hit first, but the seemingly more durable consumer and financial stocks have suffered as well. 

Analysts now believe Wall Street’s fears have been exacerbated by the fact that while the Fed is widely expected to cut interest rates, it’s unclear when that will happen. And it took six months for the effects of interest rate cuts to work their way through the economy; no one knows how long it will take for the reverse to be felt. 

Moreover, the bad earnings news has kept coming, and from a broader range of companies. Companies are reducing their predictions for 2001, saying they expect the economic slowdown’s effects to be felt well into the spring and summer of next year. 

— The Associated Press 

“What Microsoft’s warning did was end up making people feel that a hard (economic) landing is a definite possibility and that companies are going to have a harder time than expected,” said Michael Mann, senior portfolio manager of AXP Mutual Fund. “Now people are not talking about a moderating economy, but a severe slowdown.” 

Mann is hopeful the Fed will relax its stance against lowering interest rates at its meeting Tuesday. Although he believes the market has already factored that change in what’s known as the Fed’s bias, it would be a precursor to a rate cut early next year. 

“There is definitely earnings risk in the marketplace right now,” Mann said. “But the offset to this would be a Federal Reserve decision to cut rates. It wold give people a glimmer that the Fed will not allow the economy to go into a recession.” 

Shaughnessy, the Advest strategist, is also bullish about the market, predicting growth of at least 10 percent in 2001 in the Nasdaq composite index and Dow Jones industrials. But he acknowledged that getting through the rest of the month may be tough. 

He thinks January stands to be better than expected for several reasons, including the inauguration of a president predisposed to tax cuts and the release of fourth-quarter results, which he believes won’t as bad as Wall Street fears. 

But the linchpin, he admits, will be what the Fed decides to do. 

“When the Federal Reserve decides to cut rates, that always turns the stock market around,” Shaughnessy said. “And I think they’re inclined to cut rates.” 

The Dow Jones industrials closed at 10,434.96, down 277.95 or 2.6 percent for the week following Friday’s 240.03-point loss. 

The Nasdaq composite index fell 264.11 or 9.05 percent to 2,653.32 after losing 75.19 Friday. 

The Standard and Poor’s 500 index lost 57.74 or 4.2 percent for the week, closing at 1,312.15 after a 28.78 loss Friday. 

The Russell 2000 index, which tracks the performance of smaller company stocks, gave up 21.04 for the week, a 4.4 percent decline. It closed at 458.03 after losing 3.79 Friday. 

The Wilshire Associates Equity Index — which represents the combined market value of all New York Stock Exchange, American Stock Exchange and Nasdaq issues — ended the week at $12.093 trillion, down $573 billion from the previous week. A year ago the index was $13.251 trillion. 

End adv for weekend editions