New Woes, Old Story as Stocks Reel
Big-name U.S. stocks tumbled Friday, sending major indexes to their fifth straight weekly losses and knocking the Standard & Poor’s 500 below 1,000 for the first time since September.
Rising Mideast tensions, new warnings of possible terrorist attacks in the U.S., deepening declines in the dollar and new questions about corporate accounting sent blue-chip shares reeling.
The Dow industrials sank 177.98 points, or 1.9%, to 9,253.79, while the Nasdaq composite dropped 23.79 points, or 1.6%, to 1,440.96.
Drug shares helped fuel the sell-off after the Wall Street Journal reported that a unit of pharmaceutical giant Merck, a component of the Dow, used an accounting method considered more aggressive than those used by its rivals. Merck fell $2.22 to a four-year low of $49.98, Pfizer fell $2.05 to $34.03, and Abbott Labs dropped $1.54 to $36.13.
“Every day it seems there’s something new, and today it’s Merck,” said John Carey, manager of the Pioneer Fund. “I don’t know if the story is that big a deal, but it adds to the level of distrust. It’s another log on the fire.”
In a reminder of the Enron fiasco, current and former Rite Aid executives were charged with what the Securities and Exchange Commission called one of the most egregious accounting frauds ever.
Investors also were unnerved by new clashes between Israelis and Palestinians, and by the latest FBI warning: The agency said terrorists could use fuel tanker trucks to attack American targets domestically or overseas.
In currency trading, the dollar plunged to a 26-month low against the euro and to a seven-month low against the Japanese yen as confidence in U.S. assets waned. The euro surged to 97.1 cents from 96.5 cents on Thursday, while the dollar dropped to 121.43 yen from 123.37.
The dollar’s drop in recent weeks has spooked some, but Stuart Freeman, chief equity strategist at A.G. Edwards & Sons, called it “normal for this point in the economic cycle” and said the decline should eventually boost earnings for multinational companies in the S&P; 500.
But on Friday sellers dominated, clipping 1.7% off the S&P.; The index closed at 989.14, its lowest since Sept. 21, the day stocks bottomed after the terrorist attacks.
Heavy trading volume coincided with the quarterly “triple witching” expiration of stock index futures, index options and options on stocks.
The S&P; and Nasdaq could be one or two down days away from piercing their multiyear lows of 965.80 and 1,423.19, respectively, set Sept. 21.
Still, some strategists called the market’s downside limited. Phil Dow, managing director at RBC Dain Rauscher, said the second-quarter earnings season was shaping up well, with a relatively low rate of profit warnings to date. S&P; 500 profit overall is expected to rise 3% to 6% in the quarter from a year ago, he said.
For the week, the S&P; 500 lost 1.8%, leaving it down 13.8% year to date; the Dow sank 2.3%, leaving it off 7.7% in 2002; and Nasdaq plunged 4.2%, widening its loss to 26.1% for the year.
Along with the latest spate of bad news, so-called window dressing exacerbated the sell-off late in the week, strategists said, as some money managers dumped losing stocks to make their portfolios look better at the end of the quarter, which ends next Friday.
But the broader market has held up better than capitalization-weighted indexes such as the S&P; 500. The Russell 2,000 index of smaller stocks inched 0.2% higher Friday and is down 5.6% year to date. Even within the S&P; 500, 50 of the 102 industry groups tracked by Bloomberg News gained ground during the week.
On Friday market breadth was mildly negative, with losers outnumbering winners by about 9 to 7 on the New York Stock Exchange but running about even on Nasdaq.
In the bond market, Treasury yields eased Friday as investors sought safety in government debt. The yield on the benchmark 10-year note eased to 4.77% from 4.79% on Thursday.
Among other highlights:
* Widely held stocks paced the selling. Microsoft lost $1.82 to $52.28; GE fell 75 cents to $28.95; Wal-Mart Stores slid $1.52 to $54.98; and IBM dropped $2.83 to $68.75 after Lehman Bros. analyst Daniel Niles cut earnings estimates for the computer giant.
Some stocks bucked the downtrend. Bed, Bath & Beyond rose $1.76 to $36.26 after reporting a surge in quarterly profit; Xerox jumped $1.12 to $8.97 after renegotiating a $7-billion credit line.
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Market Roundup, C4-5
