The Dow Jones industrial average dove 180.78 points, or 1.6%, to 10,791.29. At one point in the afternoon, the average had fallen as much as 258 points. The Nasdaq Composite plunged 65.83 points, or 2.4%, to 2,640.01, while the Standard & Poor's 500 Index fell 1.8%.
The damage was sparked by the Labor Department's report that the second-quarter employment cost index rose 1.1%, significantly more than the expected 0.8% rise and the biggest gain since 1991's second quarter. The wages and salaries component of the report was up by a larger-than-expected 1.2%. The employment cost index is closely watched by Federal Reserve Chairman Alan Greenspan.
After yesterday's close, Compaq Computer (CPQ) posted a $184 million loss for the second quarter. The world's largest PC maker also said it will record a $700 million to $900 million restructuring charge in the third quarter to cover plant closings and the elimination of 6,000 to 8,000 employees. That would represent as many as 12% of Compaq's 68,000 full-time employees. Compaq's loss per share was 1 cent less than the mean analyst forecast. Its stock dropped 1-3/16 to 24-3/4
Other computer hardware stocks followed suit, with IBM (IBM) dropping 3 to 125-3/8; Hewlett-Packard (HWP), 3-5/16 to 106-5/8; Dell Computer (DELL), 1-1/2 to 41-1/4; and Sun Microsystems (SUNW), 2-7/16 to 68-5/16.
Software giant Microsoft (MSFT) fell 3-1/16 to 86-15/16. The federal government, having failed so far to settle its antitrust suit against Microsoft out of court, is attempting to break up the company, according to an article in USA Today. The stock of competitor Oracle (ORCL) rose 1/2 to 38-3/16.
The credit rating agency Duff & Phelps downgraded its ratings on the debt securities of Advanced Micro Devices (AMD) because of "continuing operating losses and the need for substantial additional capital expenditure before AMD realizes what could be large returns from its attractive new generation of microprocessors." Despite the downgrade, AMD's stock rose 11/16 to 17-1/2 today.
The stocks of ERP vendors and networking companies were all lower, in response to the overall drop in the markets. SAP (SAP) fell 1-3/8 to 32-3/8; PeopleSoft (PSFT), 9/16 to 13-15/16; Lucent (LU), 1-1/2 to 65-3/8; Nortel (NT), 1-1/8 to 88-1/4; and Cisco Systems (CSCO), 1-9/16 to 61-3/4.
Internet stocks, which are more volatile than most other securities, dropped sharply today, with Yahoo (YHOO) losing 6 to 137; Ebay (EBAY), 2-11/16 to 102-1/4; and America Online (AOL), 3-1/2 to 99-1/4.