Wall St. Extends Last Week’s Decline
UAL Corp.’s bankruptcy filing and a brokerage downgrade of IBM shares put investors in a dark mood as they began the week Monday, sending stocks sharply lower.
Key indexes suffered their steepest losses in four weeks, as the decline that began last week accelerated.
The Dow Jones industrial average sank 172.36 points, or 2%, to 8,473.41.
The Nasdaq composite index slid 55.30 points, or 3.9%, to 1,367.14.
President Bush’s choice of John W. Snow, chief executive of railroad operator CSX Corp., to be Treasury secretary failed to extend the modest gain in stocks after Paul H. O’Neill’s resignation on Friday.
“Most people don’t know who Snow is,” said James McGlynn, who helps manage $5.7 billion at Summit Investment Partners in Cincinnati. He is “untested.”
Meanwhile, investors remain jittery about the prospect of war with Iraq, analysts said.
Losers topped winners by 24 to 9 on the New York Stock Exchange and by 25 to 9 on Nasdaq. Trading volume was about on par with Friday’s levels.
Some experts said the pullback over the last week isn’t surprising, given the heady gains in many stocks since early October.
The losses Monday pushed the Dow back to where it was on Nov. 19. Nasdaq is back to levels last seen on Nov. 13.
Analysts say many investors are still largely upbeat despite recent declines and should bid stocks higher by year’s end.
“December is usually one of the market’s strongest months, but it’s usually the last week and a half that we see the gains,” said Steven Goldman, chief market strategist at Weeden & Co. in Greenwich, Conn.
“I think after we finish this consolidation, stocks should be set up for some type of year-end rally,” he said.
Others warned that some investors may have gotten too excited about the potential for corporate earnings gains in 2003.
“We are in a low-growth environment where earnings expectations still need to be adjusted down,” said Richard Turgeon, director of research at Victory Capital Management, which manages $65 billion in Cleveland. The firm has been selling retail, technology and auto stocks in the last two weeks, he said.
On Monday, IBM shed $2.73 to $79.59. Banc of America Securities analyst Joel Wagonfeld said the stock trades at the high end of its historical valuation range after a 50% rally in two months.
Wagonfeld cut his rating to “market perform” from “in-line” and reduced his 2003 revenue estimate by 3%, to $87 billion.
Airline stocks were mostly lower after UAL’s bankruptcy filing, even though it had been expected. Continental dropped 65 cents to $8.10, Delta lost 99 cents to $12.41 and Southwest fell 26 cents to $16.
Among suppliers to airlines, Boeing was off $1 to $32.40 and United Technologies slumped $1.41 to $60.60.
As the market slid, some investors turned to Treasury securities. The yield on the 10-year T-note fell to 4.03% from 4.09% on Friday.
The economy will “recover but probably at a slower pace than what a lot of people would like,” said Fred Engimann, who helps manage $17 billion at Chicago Capital Management. “Anticipation that things are not going to be as rosy as stocks had priced in during their rally a few weeks ago” is helping Treasuries.
Economic growth probably will slow to a 1.6% annual pace this quarter from a 4% pace in the third quarter, according to the November Blue Chip Economic indicators survey.
The economy will expand by 2.8% next year after growth of 2.4% in 2002, according to the median forecast of economists belonging to the Bond Market Assn.’s Economic Advisory Committee.
Gold eased after gaining last week. Near-term futures slipped 50 cents to $325.80 an ounce in New York.
Investors will be intently studying this week’s economic reports for clues to the economy’s next move, analysts said.
Today the Federal Reserve meets, but policymakers aren’t expected to make changes in their benchmark interest rates.
Among Monday’s highlights:
* Qualcomm slid $2.29 to $39.19. Salomon Smith Barney analyst T.C. Robillard Jr. cut his rating on the owner of patents for mobile telephones to “in line” from “outperform.” He cited concern that share gains have outstripped earnings potential.
Qualcomm has climbed 40% since Oct. 9.
* Software shares including Microsoft and Oracle declined after Morgan Stanley lowered its recommendation on the industry to “cautious” from “in line,” citing concerns about valuation.
Analyst Charles Phillips said a recovery in the industry is likely to be “mild” and license growth will be little changed next year.
Microsoft, the biggest software maker, lost $1.94 to $53.53. Oracle, the third-largest software maker, dropped 75 cents to $10.53. Siebel Systems, the biggest maker of programs to automate customer service, slid 62 cents to $7.68.
* Wal-Mart dropped $1.19 to $51.85. The retailer said sales last week at stores open at least a year increased about 3%, at the low end of expectations.
* Citigroup and J.P. Morgan Chase dropped in advance of Senate hearings Wednesday that will focus on allegations that the banks helped Enron hide debts. Citigroup fell $1.41 to $36.15 and J.P. Morgan Chase slid $1.17 to $23.26.
On the plus side, Allegheny Energy surged $2 to $8.30. J.P. Morgan Securities analyst Jamie Waters said the utility owner’s prospects have improved as it nears obtaining $2.06 billion in bank financing. He lifted his recommendation to “overweight” from “underweight.”
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Market Roundup, C7-8
