Dow Sinks 2.1% in Losing Streak
The Dow industrials slid 178 points Monday in light holiday trading as investors fretted about the state of the U.S. economy and whether Iraq will comply with the U.N. resolution demanding cooperation with weapons inspectors.
It was the first three-day losing streak for the market since early October, raising questions about the viability of the rally that started after major stock indexes reached multiyear lows Oct. 9.
“This is crunch week for the market, if you will,” said John Carey, manager of the Pioneer Fund in Boston, referring to Friday’s deadline for Iraq to respond to the United Nations. “There are heightened expectations because of the U.N. deadline.”
The Dow Jones industrial average sank 178.18 points, or 2.1%, to 8,358.95; the broader Standard & Poor’s 500 index lost 18.55 points, or 2.1%, to 876.19; and the tech-heavy Nasdaq composite fell 40.09 points, or 3%, to 1,319.19.
Losers swamped winners by about 2 to 1 on Nasdaq and the New York Stock Exchange, but volume was thin as many traders took Veterans Day off. The Treasury market was closed for the holiday.
Along with growing anxiety over the U.S.-Iraq standoff, the sluggish U.S. economy is weighing on the investors’ minds, analysts say.
Although the Federal Reserve slashed interest rates a surprising half percentage point last week, it’s unclear how well the Fed’s string of rate cuts -- which began in January 2001 -- is working, Carey said. He noted that many big-name companies such as Cisco Systems continue to say the outlook for profits remains murky.
Added Rod Smyth, investment strategist at Wachovia Securities in Richmond, Va.: “There is not sufficient economic or corporate earnings momentum to sustain a robust, straight-ahead advance” by the stock market. And though Smyth does not believe deflation is likely, he said the Fed’s bold rate cut reminded investors that such a risk is out there.
Contributing to the blue-chip slide Monday was speculation that billionaire Warren Buffett will make a lower-than-expected offer for General Electric’s reinsurance unit. In addition, the departure of Hewlett-Packard’s No. 2 executive raised questions about how smoothly HP’s integration of Compaq Computer will proceed.
GE slid 89 cents to $24.21 and HP lost $1.83 to $14.85. Both are Dow stocks.
Still, bullish analysts said thin trading volume showed that even sellers lacked conviction.
“If I see volume in a down market, I’ll be concerned,” said Philip Dow, director of equity strategy at brokerage RBC Dain Rauscher in Minneapolis. “We’re in a vacuum. About all the market can do is focus on Iraq.”
Other news is “already out there,” Dow said, pointing to last week’s elections, in which the Republicans took control of Congress; last Wednesday’s Fed meeting; and third-quarter corporate earnings, which show S&P; 500 profit up 6.9% with most companies having reported, according to data tracker Thomson First Call.
Short-term traders also may simply be taking profits, analysts say. The Dow had jumped 20.4% or 1,300 points in four weeks before the cumulative 412-point decline that started Thursday.
“We had a nice little run, so it’s easy for traders to sell a little bit,” said Fritz Reynolds, manager of the Reynolds Blue Chip Growth fund in San Francisco.
In other highlights:
* Hospital stocks continued to slide amid questions about billings. Tenet Healthcare fell 90 cents to a new 52-week low of $14. HCA tumbled $3.06 to $36.94 and Health Management Associates lost $1.08 to $16.79.
* Software maker Oracle dropped 50 cents to $9.05 after Deutsche Bank downgraded the stock to “hold” from “buy.”
* Safeway, which warned Friday that the weak economy was taking a toll on its earnings, lost 92 cents to $19.08 after union workers at its Dominick’s chain in the Midwest authorized a strike, Reuters reported. Albertson’s dipped 12 cents to $19.70, and Kroger eased 28 cents to $13.82.
Duke Energy dropped $1.55 to $18.41 after it and three other energy firms were subpoenaed by the U.S. attorney’s office in California as part of a grand jury investigation into the manipulation of power prices, Bloomberg News reported. Reliant Resources fell 31 cents to $1.94, Mirant lost 34 cents to $1.91 and AES slid 45 cents to $1.54.
Market Roundup, C8-9