Stocks Hit by More Accounting Concerns
Stocks tumbled Tuesday as investors returned from the long weekend with new concerns about the accuracy of corporate accounting and the health of the telecom industry.
The Nasdaq composite index dropped 54.59 points, or 3%, to 1,750.61, its lowest close since Nov. 2. The technology- and telecom-heavy index’s ninth losing session in the last 12 widened its year-to-date loss to more than 10%.
The Dow Jones industrial average slumped 157.90 points, or 1.6%, to 9,745.14, and the Standard & Poor’s 500 slid 1.9%, although both blue-chip indexes remained above their recent lows of two weeks ago.
“After the Enron crisis, we’re seeing a lot of guilt by association,” said Fritz Reynolds, manager of San Francisco-based Reynolds Blue Chip Growth Fund. “People wonder who’s hiding what, and now every company is suspect. Now it seems to be IBM’s turn.”
IBM dropped $3.35 to $99.54, its lowest price since Oct. 11, even though the computer giant pledged to provide more details about its accounting in response to investor concerns. The stock was clipped Friday after a published report questioned whether the company was completely forthcoming in reporting the sources of its fourth-quarter revenue.
Meanwhile, the cash-strapped telecom sector continued to slump. Nextel Communications sank $1.31 to a record low of $3.55 after Barron’s magazine said the heavily indebted wireless network operator may not be able to find a suitable merger partner.
Among other wireless shares, Sprint PCS slid 52 cents to $8.75, Western Wireless lost 49 cents to $9.04, and Rural Cellular slumped $1.35 to $4.75.
Also in the telecom sector, Qwest Communications fell 29 cents to $7.27, WorldCom Group eased 25 cents to $6.48, and Lucent Technologies dipped 12 cents to $5.29.
Losers topped winners 25 to 10 on Nasdaq and 2 to 1 on the New York Stock Exchange, though trading was moderate.
Action in foreign markets set a poor tone for Wall Street. Japan’s Nikkei-225 index tumbled 2.4%. Some analysts said there was disappointment that President Bush, on a visit to Japan, didn’t push for greater economic reforms.
European markets also were weak. Bloomberg’s index of 500 blue-chip European stocks slid 1.9%.
The U.S. market surged in the fourth quarter, anticipating an economic recovery this year. Recent data have pointed to a stabilizing economy. But because of “Enronitis” jitters, a renewed rally in the market may have to wait for clearer signs that business activity, and corporate earnings, are reviving, Reynolds said.
Although broad market indexes have slumped in the last six weeks, the pullback so far has been fairly normal in the context of the rally between Sept. 21 and Jan. 4, according to so-called technical analysts, who scrutinize market chart patterns.
A 50% “retracement” of the rally would be typical as investors take profits, analysts say. So far, the S&P; 500 has given back about 43% of the points gained in the rally. The Nasdaq composite has given back about 49% of its rally.
The Dow has yet to give back even one-third of its post-Sept. 21 rally.
“This kind of retracing is normal, especially after such a strong rally,” said Bill Ryder, quantitative strategist at First Union Securities in Richmond, Va.
But if the S&P; were to retrace more than 50%, to 1,050, “That would be our line in the sand,” Ryder said. “We would advise our risk-averse clients to become a little more cautious.”
Thomas McManus, equity strategist at Banc of America Securities in New York, worries that key indexes could “retest” their September lows sooner rather than later.
The Nasdaq composite would have to fall 19% to hit its three-year low of 1,423 reached on Sept. 21, but that kind of move can happen quickly in the Nasdaq market: The index sank 25% in one week during its April 2000 tailspin, McManus noted.
Market Roundup, C6-7
