Investors Unload Stocks Ahead of Meeting on Iraq
Stocks slumped Tuesday as nervous investors awaited a diplomatic meeting today that could heighten the threat of war with Iraq. War jitters sent the price of gold to a six-year high, drove the dollar lower and pumped up oil prices.
Secretary of State Colin L. Powell is scheduled to provide the United Nations Security Council with evidence that Washington says will show that Iraq is hiding banned weapons from U.N. arms inspectors.
“Apprehension is growing about the uncertainties of what may occur in the Middle East,” said A.C. Moore, chief investment strategist at Dunvegan Associates.
Worries about the foggy corporate profit outlook were reignited after American International Group, the world’s largest insurer, announced a $1.8-billion charge to cover liability claims that have built up in recent years. AIG’s share price sank $3.63, or more than 6%, to $51.70, pulling other insurers down.
“AIG is more than a bellwether -- it’s a reflection of where the global economy is,” said John Gillette, a trader at investment firm Lazard Freres. “And for them to say they have balance sheet problems, it calls into question valuations everywhere.”
The Dow Jones industrial average closed down 96.53 points, or 1.2%, at 8,013.29 after falling 175 points in the early going. The Standard & Poor’s 500 index dropped 12.12 points, or 1.4%, to 848.20, and the tech-heavy Nasdaq composite index lost 17.64 points, or 1.3%, to 1,306.15.
Decliners beat advancers by 10 to 7 on the New York Stock Exchange and by 5 to 3 on Nasdaq in active trading
Investors worry that war would jeopardize the fragile economic recovery, trigger a spike in oil prices and put the brakes on corporate profits. The bulk of the earnings reporting season is over, with few signs that corporate fortunes are poised for a solid upturn this year.
“The key to a stock market recovery would be a feeling among investors that profits are going to recover,” said Rick Meckler, president of investment firm LibertyView. “Some of the large and well-known companies are really disappointing -- maybe not so much in actual numbers but in outlook.”
Powell has said he will provide the Security Council with “sober and compelling proof” that Iraq is hiding weapons from U.N. arms inspectors -- a move seen as adding to the likelihood of a U.S.-led attack against Iraq.
Friction between the United States and North Korea put another dent in investor sentiment. U.S. aircraft and warships were put on alert for possible deployment after North Korea said Monday that its troops were at the ready in case of U.S. “military and political moves” against it.
War fears pushed near-month gold futures up $8.20 to $379 an ounce in New York, the highest level since October 1996. Crude oil also gained on concerns that war would disrupt Middle Eastern supplies. In near-month futures trading in New York, oil gained 82 cents to $33.58 a barrel.
The dollar, meanwhile, fell against the euro and the Japanese yen, and Treasury yields slipped as investors sought a haven in U.S. government securities. The yield on the benchmark 10-year Treasury note fell to 3.92% from Monday’s close of 4%.
In other highlights:
* European markets suffered their own bout of war worry, with key share indexes losing 2.7% in Britain, 3.2% in France and 4.3% in Germany.
* General Electric declined 60 cents to $23.05. British bank Abbey National sold most of its First National consumer-lending unit to GE for $1.39 billion, a big premium over the firm’s net tangible assets.
* French telecom equipment maker Alcatel lost 22 cents to $6.78 after it predicted a deeper-than-expected decline in first-quarter 2003 sales. Its U.S. competitor Lucent Technologies fell 19 cents, or 10%, to $1.65. The North American telecom index fell more than 1%.
* Biotech company Genzyme General tumbled $2.55 to $30.65. The company said 2003 earnings would trail Wall Street estimates because of steep costs to develop and market new drugs.
Market Roundup, C8-9
