Anxiety Pushes Blue Chips Down
Stocks fell again Wednesday as investors struggled with worries over the Mideast conflict, continuing woes in the technology sector, new accounting probes by federal regulators and more hints the economy may not be recovering as quickly as expected.
The blue-chip Dow Jones industrial average suffered its fourth straight loss, losing 115.42 points, or 1.1%, to close at 10,198.29--its lowest level in a month. The broader Standard & Poor’s 500 index fell 11.36 points, or 1%, to 1,125.40. The technology-laden Nasdaq composite index fell 20.05 points, or 1.1%, to 1,784.35, as a number of software companies issued profit warnings.
Losers led winners by 5 to 3 on the New York Stock Exchange and by 3 to 2 on Nasdaq. Volume was on the light side, continuing a recent trend.
“The market is realizing that maybe [corporate] earnings are not going to be as rosey as people thought they were going to be,” said Sung Won Sohn, chief economist for Wells Fargo Bank. “The stock market may have run ahead of itself, ahead of profit expectations.”
Several stocks also were hammered by questions about their accounting methods. Energy trader Dynegy fell $1.30 to $28.79 after the Wall Street Journal reported the company used special accounting methods to boost its cash flow. At the same time, cable and phone company Adelphia Communications said its books were being probed by the Securities and Exchange Commission, which also is reportedly investigating the energy firm Williams.
Adelphia fell 79 cents to close at $11.04, while Williams dropped $1.09 to close at $23.08.
Adding to investor nervousness was fierce fighting in the Middle East that some feared could lead to disruption in oil supplies and higher prices worldwide. After hitting six-month highs on Tuesday, oil prices eased slightly Wednesday on a report of sharply increased U.S. stockpiles. Crude futures for May delivery dropped 15 cents to $27.56 a barrel on the New York Mercantile Exchange.
Another politically sensitive commodity, gold, also fell slightly after a four-day rally. Near-term gold futures fell $3.30 to $302.60 an ounce, after reaching $308.
Lower prices for oil and gold didn’t improve stock investors’ mood, however, and the pessimism extended to a tepid economic report on the services sector.
The Institute for Supply Management said its monthly nonmanufacturing index fell to 57.3 in March from 58.7 in February. Although any number over 50 is considered positive, market watchers were worried that the slippage shows companies may not be growing or adding jobs as quickly as they had hoped.
Economists also are concerned that the March unemployment rate, scheduled to be reported Friday, will rise to 5.6% from 5.5% in February.
“We continue to get layoff notices every single day,” Sohn said. “That’s an indication that earnings are still under pressure.”
Without strong profit growth, the market is likely to remain in a trading zone--not declining steeply unless wide-scale fighting breaks out in the Middle East, but not climbing much until clear signs emerge that companies are making money and hiring new workers, said James Paulsen, chief investment officer for Wells Capital Management.
“You could get a profitless, jobless recovery,” Paulsen said. “There’s no indication that’s happening yet, but it’s at the back of people’s minds.”
Other market watchers dismissed such fears, and pointed to the recent relatively low trading volumes as a sign that investors aren’t abandoning the market en masse. Indeed, late in the afternoon the Dow rebounded from a 174-point drop after buyers began looking for bargains.
“The market is fine,” said Al Goldman, chief markets strategist for A.G. Edwards. “What we had was a tremendous rally since Friday, Sept. 21, and the last two months we’ve been working off some of the excesses.”
One area where expectations grew too fast, analysts said, was computer software. Business software maker PeopleSoft on Tuesday helped squash hopes for a quick rebound, saying earnings missed analysts’ expectations. Other software makers, including Vitria Technology and DigitalThink followed with their own profit warnings Wednesday.
Vitria, which said its first-quarter loss would be much larger than analysts expected, fell 80 cents, or 23%, to $2.63. Shares of DigitalThink dropped 71 cents, or 35%, to $1.33 after the company said its quarterly results would fall short of forecasts.
The Goldman Sachs software stocks index fell 2.3%.
Bond yields fell for a second day on the weak economic news. The yield on the benchmark 10-year Treasury note fell to 5.28% from 5.34% Tuesday.
In other market highlights:
* 3M fell $2.08 to $112.91 after a Lehman Bros. analyst said its shares were richly valued and there is concern about slowing sales and higher costs. 3M shares have climbed 67% the last six months.
* Caterpillar dropped $1.48 to $54.92. J.P. Morgan Securities analyst Gary McManus said the expected economic rebound may already be factored into manufacturing stocks and lowered his rating on the stock to “long-term buy.” McManus also cut his rating on Ingersoll-Rand, which fell $2.06 to $46.89, and Parker Hannifin, which lost $2.08 to $46.70.
* Oil shares declined along with crude prices. Exxon Mobil fell 69 cents to $43.69, ChevronTexaco lost 86 cents to $90, and oil and gas producer El Paso lost 87 cents to $45.60.
* Philip Morris was one of only three of the 30 stocks in the Dow average to gain, adding 24 cents to $53.30. South African Breweries is in exclusive talks to buy U.S. brewer Miller from Philip Morris for about $5 billion, according to published reports.
Market Roundup, C6-7
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Bloomberg News was used in compiling this report.
