Bad News Keeps Investors at Bay
Stocks fell for a fourth straight session Monday as a dismal earnings forecast from retailer Sears Roebuck and fear of a U.S.-Iraq war helped drive market indexes to new multiyear lows.
The market passed another unwelcome milestone: The benchmark Standard & Poor’s 500 index now has fallen 48.6% from its March 2000 peak. That surpasses the 48.2% price decline of the 1973-74 bear market, making this the worst bear since the S&P; 500 tumbled 54% in 1937-38.
The continued shutdown of West Coast ports also weighed on investors, despite moves by the Bush administration to intervene in the labor dispute.
“There are just no signs of buying interest,” said Arnold Kaufman, editor of the S&P; Outlook newsletter. “The news continues to be poor, and there are no heroes out there to step up and buy stocks.”
The S&P; 500 lost 15.30 points, or 1.9%, to 785.28, becoming the last of the three major indexes to break through the multiyear low it set during the summer. It was the index’s lowest close since April 1997.
The blue-chip Dow Jones industrial average fell 105.56 points, or 1.4%, to 7,422.84. It was the Dow’s second straight triple-digit loss and its lowest close since October 1997.
A late wave of selling sent the tech-packed Nasdaq composite index down 20.50 points, or 1.8%, to 1,119.40. Nasdaq closed at levels last seen in August 1996.
Losers outnumbered winners by more than 3 to 1 on the New York Stock Exchange and by 8 to 3 on Nasdaq. Trading was active but down from Friday’s levels.
Investors were skittish in anticipation of President Bush’s televised speech Monday evening, an effort to rally Americans behind a possible military strike against Iraq. War talk has dogged the market for weeks as investors worry that a military strike could imperil the frail U.S. economic recovery.
The market enjoyed a fleeting rally at midday that some credited to Federal Reserve Chairman Alan Greenspan, who said that despite a sharp climb in business failures and investor losses in recent years, the nation’s financial system remains in good shape.
But the rally failed to hold as the dimming outlook for corporate profits continued to top investors’ list of worries.
Sears, the No. 4 U.S. retailer, sank $5.39 to $32.25 after it warned that third-quarter profit would be below Wall Street expectations because of rising losses on its credit card accounts.
The damage spread to other retailers and credit card issuers. The S&P; retail index slid 4.4%, led by Home Depot, off $1.59 to $24.21, and Wal-Mart Stores, down $1.40 to $50.35. Among other big retailers, Federated Department Stores dropped $1.62 to $26.40 and Target lost $2.20 to $26.15.
Among consumer finance firms, Capital One Financial dropped $2.32 to $28.06, and Household International fell $1.41 to $23.25. Goldman Sachs cuts its ratings on the shares.
But it wasn’t just consumer- related stocks that were hit. Utility TXU sank $4.40, or 16%, to $22.64 after slashing its profit outlook for next year by more than a quarter because of low power prices and fierce competition in Britain.
And Cisco Systems fell 38 cents to $9.08 after Deutsche Banc Securities cut its fiscal second-quarter and full-year earnings estimates for the maker of Internet gear, citing a slowdown in U.S. economic activity. Rival Juniper Networks lost 38 cents to $4.43.
Treasury yields fell, pushing the yield on the benchmark 10-year T-note to 3.62% from Friday’s close of 3.67% as concern that the U.S. will attack Iraq fueled demand for the safest investments.
“The economy is not doing well, stocks are plunging; and add to that an impending war, and demand for Treasuries is going to remain high,” said Christopher Mahony, who manages fixed-income assets at J&W; Seligman & Co.
Among other highlights:
* Fears that Japan’s decision to fix debt-saddled banks might lead to a spate of corporate failures sent share prices plunging in Tokyo to a 19-year low. The benchmark 225-stock Nikkei index closed down 339.55 points, or 3.8%, at 8,668.00. The Nikkei last hit a lower finish on June 16, 1983, when it closed at 8,645.33. Meanwhile, the dollar surged against the yen. Japan stocks were higher in early trading today.
* Intel, the world’s biggest chip maker, rose 11 cents to $13.82 after Chief Executive Craig Barrett said he was optimistic about the tech sector and saw the current crisis ending by early 2003.
* On a less rosy note, Prudential Securities cut its ratings on the semiconductor industry, saying it now expects a more “muted” recovery in the sector. Prudential cut ratings on LSI Logic, Broadcom and others and cut price targets, estimates or both for Texas Instruments and others in the sector.
LSI fell 42 cents to $5.23, Broadcom shed 41 cents to $9.70, and Texas Instruments ended down 43 cents at $14.25. The SOX index of semiconductor stocks tumbled 3.1% to a new multiyear low and is down 58% year to date.
* Philip Morris climbed $1.99 to $38.58, offering support to the Dow. The stock sank Friday after a jury in Los Angeles ordered the world’s largest cigarette maker to pay $28 billion in damages to a woman with lung cancer.
Market Roundup, C8-9
