Stock Skid Reflects New Attitude This Time It’s Bad News That Jolts Market, Triggers Broad-Based Selling Frenzy

The wild tumble in stock prices Thursday represents a big change of thinking on Wall Street: For the first time in a long time it was bad news that sent shivers through the market.

The traders paid to spin gold from the market’s straw have been driving prices lower in fits and starts recently when faced with signs of a strengthening economy. That strange logic took hold in early March with one surprisingly strong employment report.

Since then, investors have been left biting their nails every time a new jobs report, or other shred of economic data, was released. As recently as last Friday, stocks dived on just such positive news.

But it was trouble, word of weak corporate profits, that took the air out of the market’s sails Thursday. The Dow Jones industrial average, the stock market’s most widely followed index, lost almost 134 points before recovering somewhat late in the afternoon.

The Dow ended down 83.11 points at 5,520.54, a decline of about 1.5 percent. The technology-heavy Nasdaq stock market also finished sharply lower, with its main index plunging 3 percent.

“I think sanity is returning here,” said William LeFevre, senior market analyst at Ehrenkrantz King Nussbaum Inc., a brokerage firm. “I am heartened there are people out there who are looking at the basic fundamentals.”

The most fundamental of fundamentals is corporate profits. If companies earn more money, their shares are generally worth more. That’s why quarterly profit reports are so important; they give investors a regular gauge of how the corporations they own are performing.

Word that Hewlett-Packard Co., an important computer and technology company, saw order-growth slow and forecast that would hurt sales and profits in the current quarter sent high-tech stocks tumbling.

News that one of the nation’s biggest health maintenance organizations, United HealthCare Corp., expected disappointing profits had the same effect on HMO shares. (Incidentally, chip maker Motorola Inc.’s shares tumbled Wednesday on a bad earnings report.)

Such news previously had taken a back seat to hand-wringing about economic strength - and the possibility that could prompt the Federal Reserve to raise interest rates.

Some analysts say the time is right for a change of heart, as the 5-1/2-year-old bull market starts showing its age and people are beginning to let the term “bear market” work into their vocabularies.

“Timing is everything. The timing is right,” said Stan Weinstein, publisher of the Professional Tape Reader, a market newsletter. “The thing is getting tired.”

Some worry that market pros have been experiencing a case of denial.

“It could be that all of us were way too optimistic about what lies ahead,” said Hugh Johnson, chief investment officer at First Albany Corp., a brokerage firm. That could be big trouble if not only earnings for the second quarter disappoint, but profits in outlying periods do as well.

Until now, the market’s logic has been predictable, albeit somewhat convoluted.

Ever since the government’s February employment report was released on March 8, showing more than half a million jobs were created, all the market has been able to think about is chairman Alan Greenspan and his Federal Reserve. Are higher interest rates inevitable?

At first it was concern about whether interest-rate reductions would come to an end. Now, the worry is when rates will begin to rise.

Just last Friday, word that businesses added 239,000 workers in June, far more than expected, sent the Dow average down 114.88 points. The early March meltdown on the February jobs report took the Dow off 171.24 points for its third-worst point decline ever.

With second-quarter earnings reports about to flood in, investors are waiting and watching with a great deal of concern. More disappointing earnings are likely to generate even more selling.

For many, Thursday was bad enough.

On the floor of the New York Stock Exchange traders looked particularly harried at about 2 p.m., when the Dow was down about 125 points with two hours to go.

“They’ve been killing me,” said John O’Neill, a trader at Neuberger & Berman, a brokerage.