Fresh Worries Send Shares Into Retreat
Concerns about Merck’s accounting practices and a weak profit report from Alcoa cut short Wall Street’s rally Monday, sending the Dow Jones industrials down more than 100 points and technology stocks sharply lower.
The Dow Jones industrial average closed down 104.6 points, or 1.1%, at 9,274.9, giving back almost a third of Friday’s 324-point advance.
Broader stock measures also retreated. The most significant losses came in the technology-focused Nasdaq composite index, which fell 42.75 points, or 3%, to 1,405.61. The Standard & Poor’s 500 index fell 12.05 points, or 1.2%, to 976.98. Nasdaq gained almost 5% on Friday, while the S&P; advanced 3.7%.
The overall market was mixed. Advancing issues led decliners by 8 to 7 on the New York Stock Exchange, but winners led losers by 2 to 1 on Nasdaq. Trading was light.
Analysts said some of the selling reflected the same problems that have dogged the market for weeks.
A Wall Street Journal story questioning Merck’s accounting practices sent the drug maker’s stock down as investors yet again wondered about the truthfulness of corporate earnings reports.
Merck, which denied wrongdoing, fell $1.05 to $47.81. Meanwhile, Merrill Lynch downgraded the stock, citing the possibility of a delay in the planned spinoff of the company’s Merck Medco unit, which was expected to happen as early as today.
Accounting issues also hurt WorldCom, which fell 2 cents to 23 cents as Congress began hearings on whether the telecommunications company defrauded investors through its bookkeeping. Two former top WorldCom executives refused to testify before the committee Monday.
Disappointing quarterly results sent Alcoa down 88 cents to $32.50 after the aluminum company failed to meet analysts’ forecasts, despite its first quarter-to-quarter revenue increase in more than a year. Like Merck, Alcoa is a Dow stock.
Worries that second-quarter results--which will be reported over the next few weeks--won’t be strong enough to justify higher stock prices have prompted investors to shun stocks. The recent string of bookkeeping scandals has compounded the selling as investors decide they’re better off taking any profits now--rather than risk losing them later on more bad news.
“People are certainly waiting for the next shoe to drop,” said Michael Vogelzang, president of Boston Advisors Inc. “There’s a fairly prevalent sense of ‘Who’s going to be next, and which companies in my portfolio are going to have that problem?’ ”
Much of the selling in the tech sector focused on issues that enjoyed big gains at the end of last week. Intel fell $1.04 to $18.50 after gaining 10% on Friday, and Microsoft fell $1.93 to $52.92, erasing three-quarters of Friday’s gains.
Other tech losers included Texas Instruments, which lost 83 cents to $24.15, and Dell, down $1.24 to $24.75. Dow member IBM dropped $2.20 to $71.30.
In other trading, the dollar slumped to a nine-month low against the yen while the euro notched its biggest one-day percentage gain against the greenback this year. The dollar closed at 118.57 yen, down from 120.20 yen Friday.
The slide reversed the dollar’s gains last week and came on the heels of comments by Japan’s finance minister that the dollar could fall to the levels it hit after the Sept. 11 attacks of about 115 yen.
Meanwhile, bond yields slipped as investors shifted money out of stocks and into fixed-income securities. The yield on the benchmark 10-year Treasury note fell to 4.80% from 4.86% on Friday.
Among Monday’s other highlights:
* Oil prices fell 73 cents to $26.07 a barrel--their biggest one-day decline in five weeks--on expectations of an uninterrupted flow of supply after the Fourth of July holiday passed without a major terrorist attack.
Oil services stocks followed crude lower. Schlumberger tumbled $1.66 to $45.06 and driller Noble fell $1.14 to $37.56.
* Mentor Graphics fell $3.73, or 27%, to $10.24 after the maker of semiconductor designing products warned that its second-quarter results would fall far short of Wall Street expectations because several large deals failed to close. The company warned after the market closed Friday that it would post a loss for the quarter.
* Veritas Software tumbled $2.65, or 12%, to $19.31 after Morgan Stanley’s Joseph Farley cut his 2002 and 2003 earnings estimates. “Technology spending is not recovering at the pace we earlier anticipated,” Farley said.
Associated Press, Reuters and Bloomberg News were used in compiling this report.
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Market Roundup, C9-10
