Accounting Cloud Hits IBM; Dow Reverses Course
Stocks struggled Friday as fears of improper accounting practices dogged companies ranging from corporate icon IBM to technology upstart Nvidia.
Investors have been bailing out of stocks at the first hint of impropriety since the rash of accounting scandals that began with fallen energy trader Enron.
Also weighing on investors were reports that consumers reined in their optimism in early February and U.S. factory output dipped in January, hinting that a recovery from recession may be slow and arduous. The data came as a letdown after reports this week showed a surge in January retail sales, not counting automobiles, and a drop in weekly initial jobless claims.
“One day people will be excited about the economy, and the [next] day they will be concerned about further accounting issues,” said Jeff Kleintop, chief investment strategist at PNC Advisors. “It’s almost a bipolar market.”
The Dow Jones industrial average fell 98.95 points, or 1.0%, to 9,903.04. The Dow fell below the 10,000 mark after ending Thursday above that key level for the first time since Jan. 10.
The Nasdaq composite index tumbled 38.17 points, or 2.1%, to 1,805.20, ending lower for the third week in a row. The broad Standard & Poor’s 500 index dropped 12.30 points, or 1.1%, to 1,104.18.
Losers led winners by 3 to 2 on Nasdaq and were about even on the New York Stock Exchange. Volume was lackluster ahead of Monday’s Presidents Day holiday, when markets will be closed.
For the week, the Dow rose 1.6%, the best week so far this year, and the S&P; 500 added 0.7%. But the Nasdaq composite dropped 0.8%.
IBM slumped $5 to $102.89, dragging on the Dow. The computer giant came under scrutiny after the New York Times reported that the company had not disclosed a $300-million gain on the sale of an optical unit but that it was this gain that enabled IBM to meet fourth-quarter earnings estimates.
A spokeswoman for IBM said it had adequately disclosed the sale of the unit through two press releases from Canada’s JDS Uniphase, which had bought the unit.
Computer graphics chip maker Nvidia fell $4.81 to $57.35. The company was stung when it announced an internal investigation after a Securities and Exchange Commission inquiry. Nvidia was the best performer in the S&P; 500 index last year, a distinction it inherited from Enron, the index’s best performer of 2000.
“This accounting cloud is going to hang over the market for a while,” said Milton Ezrati, senior economic strategist at Lord Abbett & Co.
In other market highlights:
* Yields on Treasury securities tumbled as accounting concerns drove investors from stocks and corporate bonds to the safety of government debt. The yield on the benchmark 10-year Treasury note fell to 4.85% from 4.94% on Thursday.
* AES fell $2.50 to $7--a 26% loss--on concern that the devaluation of the Venezuelan currency will hurt income from the electricity generator’s business there. Also, Standard & Poor’s said it may downgrade AES’ debt.
* Telecom stocks continued their recent slide. Sprint PCS fell 93 cents to $9.27 and Lucent Technologies lost 41 cents to $5.41. The Amex telecom index fell 1.9% to its lowest level in at least four years. But Qwest Communications International gained 7 cents to $7.56 after suffering losses earlier in the session because it was forced to tap into its line of credit and three debt ratings companies downgraded the company.
* Symbol Technologies, a maker of bar code scanners and other mobile data terminals, nose-dived after its warning of lower earnings and the retirement of its chief executive. It dropped $3.39 to $8.40.
* Dell Computer dropped $1.21 to $25.60. Chairman Michael Dell said corporate PC sales may pick up in the second half of this year, backing off his earlier prediction for a rebound by the middle of 2002.
Market Roundup, C4-5
