Stocks Retreat as Worries Mount
Stocks sank at the end of a seesaw session Wednesday as gnawing worries over corporate earnings and the threat of war eroded the previous day’s fat rally.
Tuesday’s 346-point gain by the Dow industrials “wasn’t a sign of things to come,” said Rafael Tamargo, director of research at Wilmington Trust Co. That rally was driven by a smattering of positive corporate profit reports and news of an agreement that would allow United Nations weapons inspectors back into Iraq.
An earnings warning Wednesday from Dow Chemical and a downbeat analyst report on Cisco Systems hurt stocks in the early going. A tepid mid-session rally gave way to a wave of late selling after President Bush warned that Iraq had limited time to comply with U.N. resolutions and the use of force may be “unavoidable.” Also weighing on the markets was the continuing shutdown of the West Coast ports.
The Dow ended the day down 183.18 points, or 2.3%, at 7,755.61. That wiped out more than half of Tuesday’s gain. The Standard & Poor’s 500 index sank 20.00 points, or 2.4%, to 827.91. The technology-laden Nasdaq composite index lost 26.42 points, or 2.2%, to 1,187.30.
Losers beat winners 2 to 1 on the New York Stock Exchange and Nasdaq in active trading.
Dow Chemical fell $2.55 to $27.25 after the second-largest U.S. chemical company warned that third-quarter earnings will miss expectations. Dow cited higher raw-material costs, mainly in Europe. The warning helped push DuPont, a component of the Dow industrials, down $2.32 to $37.31.
Cisco, the most active stock on Nasdaq, slumped 89 cents to $10.05--a loss of 8%. Wall Street brokerage UBS Warburg cut Cisco’s revenue forecasts and its price target to $14 from $15.50.
UBS cited recent weakness in information technology spending, a profit warning from rival Extreme Networks and softness in Japanese and European markets. Extreme Networks tumbled 45 cents, or more than 11%, to $3.48.
“Until we start to see some growth in earnings and revenue in some of these companies, we’re going to muddle along here,” said Suzanne Coleman, a money manager at David L. Babson & Co.
Railroad owner Burlington Northern Santa Fe fell $1.57 to $23.78 after saying the shutdown of West Coast ports would hurt profit. Other rail and shipping stocks fell as the lockout of dockworkers extended to a sixth day. Union Pacific, operator of the largest U.S. railroad, dropped $3.63 to $56.65. Trucking company Roadway fell 51 cents to $36.91.
Union leaders agreed late Wednesday to submit the dispute to mediation, but the ports weren’t expected to reopen today.
Wall Street did get some good news from Dell Computer, which lifted its earnings and sales forecasts after the market closed Tuesday. Dell rose almost 3% Wednesday, adding 68 cents to $25.32.
After markets closed, the NYSE announced a “clerical error” at brokerage Bear Stearns resulted in orders to sell $4 billion of stocks. The orders should have been entered as $4 million. The orders were entered about 20 minutes before the closing bell, and all but $622 million were canceled before execution.
Bear Stearns said the error will have no material effect on the company and declined to comment further. The NYSE said the sell orders were for $4 billion worth of “S&P; securities” but didn’t say which stocks were affected.
In other highlights:
* Financial shares were hurt after Morgan Stanley cut share-price expectations for Citigroup, Merrill Lynch and Lehman Bros. Merrill fell $1.30 to $33.15, Lehman declined $1.75 to $49.14, and Citigroup lost $1.40 to $29.60.
* Computer services giant Electronic Data Systems lost $1.74, or more than 11%, to $13.35. The company said it is cooperating with regulators in an informal inquiry related to its recent surprise profit warning and other issues.
* Japan’s benchmark stock index fell to a new 19-year low on worries about bad bank loans. Bourses in Europe surged, rising 2.8% in Britain, 4% in France and 2.2% in Germany.
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Reuters and Bloomberg News were used in compiling this report.
