Wall Street Slumps on Pessimism, War Fears
Stocks were slammed Monday, wiping out last week’s gains, as new data revealed mounting investor pessimism amid growing signs of war.
Major indexes closed at or near their lows for the day after the U.S. circulated a new United Nations resolution to push for war with Iraq sooner than later, while Saddam Hussein scoffed at a U.N. order to destroy missiles.
In commodities trading, natural gas prices rocketed 38% in New York, reflecting increasingly tight supplies.
As war jitters intensify, Wall Street got a stark indication of how glum many individual investors have gotten after three years of losses: The latest monthly market sentiment survey from brokerage UBS Warburg showed the lowest level of optimism in the study’s six-year history. The index, based on a recent survey of 1,000 investors, plunged to 9 points this month, down from 38 in January.
“People are now beyond fear. They’re in a state of emotional exhaustion that says, ‘I don’t want my money at risk anymore. I’m just not going to invest or spend,’ ” said Robert Nichols, chairman of Windward Capital Management, a portfolio manager in West Los Angeles.
“What the economy and the stock market need is a good dose of Prozac. We’re in a state of depression.”
The Dow Jones industrial average, which had inched up for the last two weeks, slid 159.87 points, or 2%, to 7,858.24, and the Standard & Poor’s 500 index sank 15.59 points, or 1.8%, to 832.58. The tech-heavy Nasdaq composite, which has been holding up best this year among the main indexes, fell just as hard, losing 26.64 points, or 2%, to 1,322.38.
It was the worst one-day drop for the three major indexes since Jan. 30.
Losers swamped winners by 2 to 1 on the New York Stock Exchange and Nasdaq, although trading volume remained modest.
Accounting irregularities disclosed by Dutch supermarket giant Ahold added to the gloom on Wall Street, reminding investors of scandals such as Enron and WorldCom. The stock lost 61% of its value, with its U.S.-traded shares tumbling $6.53 to $4.16.
At best, stocks are likely to remain stuck in a tight trading range until people feel better about U.S. corporate governance, the economy and the quality of earnings, said Jack Caffrey, equity strategist at J.P. Morgan Private Bank in New York.
Until investors are more confident that scandals are a thing of the past and that U.S. economic data show clear signs of a robust recovery, the S&P; 500 is likely to continue zigzagging within a range of about 800 to 950, Caffrey said.
Meanwhile, Iraq remains the main concern among investors of all stripes, according to analysts.
Reg Gipson, head of Los Angeles-based money management firm Alpha Analytics, said he recently met with a hedge fund manager who was holding an unusually high 35% of his portfolio in cash.
“I told him, ‘I thought you and I agreed you were not a market timer,’ and he said, ‘Yeah, but this Iraq situation is different,’ ” Gipson said. “Everybody seems to be afraid that when the shooting starts the market is going to drop another 10% or 20%, so why invest now?”
Although the market surged when the Gulf War began in 1991, Friday’s barge explosion in New York -- which immediately rocked the Dow for a 100-point loss on initial fears that terrorism was responsible -- showed how fearful investors have become these days.
“Not all the bad news is necessarily priced into the market,” Gipson said.
In other trading Monday, gold rebounded and Treasury bond yields continued to fall as investors sought refuge outside of equities. The yield on the benchmark 10-year T-note eased to 3.84% from 3.89% on Friday, while gold soared $4.50 to $356.30 in New York trading.
In currency markets, the dollar lost ground against the euro and the Japanese yen.
The CRB/Reuters index of 17 major commodities jumped 1.3% to 251.20, its highest level since May 1997. The index was driven by the latest surge in oil, natural gas and heating oil futures. Near-month oil futures rose 90 cents in New York to $36.48 a barrel.
On Wall Street, retail stocks were among the hard-hit sectors after several chains said harsh winter weather would hurt February sales. Wal-Mart Stores dropped $1.26 to $47.64, Federated Department Stores lost 76 cents to $24.82, and J.C. Penney fell 95 cents to $19.39.
Boeing slumped $1.15 to $28.49 after an analyst at UBS Warburg said the outlook for new aircraft orders was bleak. Jet engine maker United Technologies also clipped the Dow, declining $1.88 to $59.64.
In other highlights:
* Weakness among airline and trucking stocks helped drag the Dow transportation index down 3.8%, leaving it only a few points above the multiyear low hit in October. Northwest Airlines fell 47 cents to $5.68, Roadway lost $2.34 to $30.51, and Ryder System dropped 97 cents to $22.05.
* Lowe’s defied the broad downtrend, jumping $2.08 to $38.10 after the home-improvement retailer reported higher-than-expected profit and gave an upbeat outlook.
* Rising crude prices continued to give oil services stocks a lift. Haliburton rose 48 cents to $20.48, and Nabors Industries climbed $1.87 to $42. ChevronTexaco advanced 36 cents to $64.41.
* European markets also slumped, with indexes off 2.9% in Germany, 1.6% in France and 0.7% in Britain.
