Fresh Accounting Worries Knock Stock Market to Three-Month Lows
Stocks tumbled Monday, knocking key indexes to three-month lows, as deepening concerns over accounting at conglomerate Tyco International and fresh worries inspired by the continuing Enron debacle rattled investors.
The Standard & Poor’s 500 index sank 27.76 points, or 2.5%, to 1,094.44, its lowest close since Nov. 2, before the U.S. and its allies had scored major victories in the war in Afghanistan. The technology-heavy Nasdaq composite index slid 55.71 points, or 2.9%, to 1,855.53, its lowest close since Nov. 12. The Dow Jones industrial average fell 220.17 points, or 2.2%, to 9,687.09, closing above the recent low it hit Jan. 29.
“There’s a tremendous amount of fear infecting the whole market. Nobody gets the benefit of the doubt anymore,” said Rod Smyth, chief investment strategist at First Union Securities.
“Osama bin Laden tested our faith in security,” Smyth said, referring to the Sept. 11 terrorist attacks. “Now Enron is testing our faith in securities and the accounting profession.”
Tyco skidded $5.73 to $29.90 after saying it spent $8 billion in three years on more than 700 undisclosed purchases. The stock is now off 49% year to date as some investors have questioned the company’s accounting.
Meanwhile, Enterasys Networks plummeted $6.60 to $4.20 after the maker of computer network switches said late Friday that it was being investigated by the Securities and Exchange Commission and that its fourth-quarter earnings results would be delayed.
Tech and telecom stocks led the Nasdaq’s sell-off, with the Amex telecom index down 5.2% and the Amex networking index off 8.5%.
Other stocks taking a pounding included Irish pharmaceutical giant Elan, whose U.S.-traded shares plunged $15.10 to $14.85 after the company slashed its 2002 earnings forecast. Last week the stock was rocked by questions about Elan’s accounting involving various joint ventures.
From the S&P; 500’s recent bottom Sept. 21 through the first week of January, the blue-chip benchmark rallied 21%, spurring widespread hopes for an end to the two-year bear market.
But bears have regained control on Wall Street, sending the index sliding about 7% in the last four weeks amid the Enron bankruptcy and accounting scandal.
Smyth said investors in general are legitimately concerned about the reliability of corporate accounting, but he said some stock traders “may be overreacting.” Smyth remains bullish for the market in 2002, but warned that Enron’s collapse and the accompanying accounting worries could lead the market back to its post-Sept. 11 low point.
Trading was active Monday, with losers swamping winners by more than 2 to 1 on the New York Stock Exchange and by almost 3 to 1 on Nasdaq.
Treasury yields eased as many investors fled stocks for government debt, and the dollar fell against the euro and the Japanese yen amid growing pessimism about an imminent economic turnaround in the U.S. The yield on the benchmark 10-year Treasury note fell to 4.90% from Friday’s close of 4.98%.
Among the market highlights:
* Microsoft sank $1.54 to $61.12, a drag on all three major indexes, after Chairman Bill Gates said Sunday that he doesn’t expect much pickup in the economy this year.
Elsewhere in the tech sector, Ciena dropped $1.88 to $10.12 on a downgrade from ABN Amro; Priceline.com skidded $1.49 to $4.83 after warning that first-quarter profit could be disappointing because of light travel sales; and Amazon.com fell $1.20 to $12.53 after a Wall Street Journal article raised questions about the company’s liquidity.
In telecom, Avaya dropped $1.14 to $6.76 after a debt downgrade from Moody’s Investors Services, while WorldCom fell $1.48 to $8.13.
* General Electric dropped $1.85 to $35 as investors remained nervous about any conglomerate with a complex accounting structure.
* In overseas trading Monday, Japan’s Nikkei 225 index lost 159.50 points to 9,631.93. The Nikkei is trading below the level of the Dow industrials for the first time since 1957.
* Financial stocks slumped amid concern about the chances for recovery in the economy and the stock market this year. American Express lost $1.68 to $33.42, and Merrill Lynch sagged $2.88 to $47.12.
* Motorcycle maker Harley-Davidson lost $2.97 to $53.19 after BusinessWeek said demand for the company’s current model year products has slowed.
* Airline stocks declined as January flight traffic remained sluggish, according to results from some carriers. Continental Airlines dropped $1.36 to $27.25; UAL, parent of United Airlines, slipped 21 cents to $13.22; and Southwest Airlines dipped 20 cents to $18.57.
* Gold stocks were among the few bright spots. Newmont Mining rallied $1.09 to $23.90 and Placer Dome added 56 cents to $13.20.
Market Roundup, C9-C10
