Stocks End Lower, Hit by Freddie Mac and Motorola Woes
Stock prices slid Monday after news of a management shake-up at mortgage giant Freddie Mac and an earnings warning from Motorola rattled investors, sparking profit taking in the wake of Wall Street’s recent surge.
Bond yields plunged to generational lows as traders reacted to the corporate news and poised for a widely expected interest rate cut by the Federal Reserve this month.
The Dow Jones industrial average retreated below the 9,000 level, while the yield on the 10-year Treasury note fell to 3.28% -- its lowest close in more than a generation -- from 3.35% on Friday. The six-month yield slid to 0.99% from 1.02%.
The Freddie Mac news stirred memories of the accounting scandals that rocked Wall Street last year, analysts said. It also raised jitters because the robust housing market has helped keep the U.S. economy growing in spite of the three-year bear market in stocks.
“The ripple effects could be pretty big,” Peter Boockvar, strategist at Miller Tabak & Co., told Reuters. “It is shaking up some confidence in the financials since it’s a stock that had a good reputation for its finances and its conservatism.”
The Dow lost 82.79 points, or 0.9%, to 8,980.00; the broader Standard & Poor’s 500 index fell 11.83 points, or 1.2%, to 975.93; and the technology-laden Nasdaq composite sank 23.45 points, or 1.4%, to 1,603.97.
Losers beat winners by 2 to 1 on Nasdaq and the New York Stock Exchange. Trading was light.
Freddie Mac sank $9.61, or 16%, to $50.26 -- the biggest loss in the S&P; 500.
Motorola’s warning that the crisis over severe acute respiratory syndrome, or SARS, will slow sales in the Far East and crimp profit also unsettled investors as the electronics giant issued the first major corporate earnings pre-announcement for the second quarter. It slipped 21 cents to $8.68.
Wary that stock prices have climbed too high too quickly, many investors simply seized the chance to cash in profits, analysts said.
A three-month surge lifted the benchmark S&P; 500 nearly 24% from its prewar low March 11 to Thursday’s close, before a modest drop Friday and Monday’s sell-off.
Last week, more than 1,000 NYSE stocks hit 52-week highs while fewer than 10 reached new lows, said Bob Doll, president of Merrill Lynch Investment Managers, who said the market is due for a short-lived pullback.
In economic news, U.S. wholesale inventories unexpectedly fell in April for the first time in six months, suggesting that distributors were wary of the outlook for sales, a government report showed.
The dollar lost ground against the euro and the yen in currency trading on concern that turmoil at Freddie Mac might prompt international investors to sell their holdings of the government-sponsored enterprise’s debt.
In other highlights:
* Financial issues suffered, including mortgage lenders Fannie Mae, which slid $3.63 to $71.31, and Countrywide Financial, off $1.49 to $74.58.
Among brokerage stocks, Merrill Lynch fell $1.11 to $45.28, and Lehman Bros. lost $2.21 to $72.32.
* Wall Street downgrades clipped several tech stocks, including Check Point Software, off 95 cents to $19.23; Adobe Systems, down $1.89 to $35.40; and QLogic, which lost $2.10 to $48.93. Analysts cited valuations in light of this year’s Nasdaq run-up, and even after Monday’s losses each of the three stocks is up more than 40% in 2003.
* R.J. Reynolds Tobacco Holdings, whose chief financial officer, Richard Bogan, resigned after less than a year, dropped $1.22 to $34.97.
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Market Roundup, C6-7
