A Spate of Bad News Sends Stocks Reeling
Stocks were hammered Thursday by a barrage of bad news that ranged from earnings disappointments to a report that yet another big company could be under investigation for accounting irregularities.
“We are in a skittish time of the year anyway, and the reports that came out sure didn’t bolster anyone’s confidence,” said David Brady, senior portfolio manager for the Stein Roe Young Investors fund.
Dow component General Electric and Internet bellwether Yahoo slumped after both posted disappointing results. Closely watched and widely held GE slid $3.45 to $33.75 after it said first-quarter revenue was nearly unchanged from a year earlier, fresh evidence that the U.S. economy may not be rebounding as strongly as expected.
Yahoo, considered by many the brightest hope for achieving solid profits in cyberspace, lost $2.99 to $15.45 after the company posted its sixth consecutive quarterly loss late Wednesday.
Meanwhile, IBM, another important Dow stock, dropped more than 5%--losing $4.82 to $84.19--after a Minnesota-based newsletter reported that the Securities and Exchange Commission was conducting an investigation of the firm.
The SEC, which normally does not comment on pending investigations, announced after the market closed that it had ended a brief, unspecified inquiry into IBM without taking any action. That sparked an after-hours rally in IBM shares, which rose to $87.27 in the evening session.
The Dow Jones industrial average ended the day down 205.65 points, or 2.0%, at 10,176.08, while the broader Standard & Poor’s 500 index was off 26.78 points, or 2.4%, at 1,103.69. It was the worst one-day drop for both indexes since Feb. 4.
The tech-laden Nasdaq composite index fell 41.83 points, or 2.4%, to 1,725.24. Nasdaq, now down 11.5% year to date, is approaching its low for 2002 of 1,716.24.
Losers outnumbered winners by about 2 to 1 on both Nasdaq and the New York Stock Exchange. Trading volume was the heaviest it has been in several weeks.
The raft of unsettling news cast a pall over the market’s near-term prospects. Although leading indicators point to a continuing recovery, accounting scandals have made investors skittish about earnings and the veracity of corporate reports. That’s making it difficult for the market to climb out of its two-year slump, market analysts said.
“The market is particularly sensitive to profit shortfalls and concerns about earnings restatements right now,” said Stuart Freeman, chief equities strategist at AG Edwards in St. Louis. “Investors are in a ‘show-me’ mood. I think the volatility we are seeing is going to continue to drive the environment until the earnings comparisons start looking strong again.”
Moreover, though housing and consumer spending remain relatively strong, companies aren’t rushing to rehire workers or boost capital spending, said Bob Bacarella, president of mutual fund company Monetta Financial Services Inc. That may have affected how seriously investors view this recovery--as was demonstrated by the reaction to GE’s lackluster results.
“At some point, the market will turn. But near term, I’m not that optimistic,” he said. “We need to see some signs that growth is picking up and I’m not seeing enough of that right now.”
Investors were unimpressed with Thursday’s reports on weekly jobless-benefits claims. Reports on the March wholesale inflation index, retail sales and consumer sentiment will offer more clues on the economy’s health today.
First-time jobless claims fell by 55,000 to a seasonally adjusted 438,000 for the week ended April 6, the Labor Department said. But while these claims decreased last week, the level remained well above Wall Street’s expectations and reflected a pickup over the last few weeks in applications for extended unemployment benefits.
In other market news Thursday:
* Oil prices plunged $1.14 to $24.99 a barrel in New York trading--their biggest decline in almost three months--after Venezuelan President Hugo Chavez called for talks to end a strike that has disrupted shipments from one of the U.S.’s biggest oil suppliers. Oil shares followed crude lower. ChevronTexaco lost $1.15 to $86.45 while Phillips Petroleum fell 65 cents to $59.70.
* Brokerage shares fell. Merrill Lynch & Co. will have until April 19 to make broad disclosure of its investment banking relationships in stock research reports under an agreement reached with New York state’s attorney general. Its stock sank $4.02, or 8%, to $46.90. The Amex brokerage index fell 4%.
* AT&T; lost $1.15, or 8%, to $13.27 the day after it announced a 1-for-5 reverse stock split to bulk up a stock price that has fallen 30% in the last year.
Other telecom stocks fell after a recent slew of financial warnings in the sector. Sprint PCS fell $1.39, or 13%, to $9.23. Rival Nextel fell 42 cents, or 9%, to $4.34 after Moody’s Investors Service warned it may cut the firm’s credit ratings.
Reuters was used in compiling this report.
Market Roundup, C5-6
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