Another September Mourn for Stocks
By Rebecca Byrne
Staff Reporter
09/03/2002 11:05 AM EDT
The major stock averages were pummeled early Tuesday as weak overseas markets, a slew of analyst downgrades and disappointing economic data gave investors an excuse to sell at the start of a traditionally bad month for stocks.
The Dow Jones Industrial Average was last down 245, or 2.83%, to 8418. The S&P 500 shed 27 points, or 3%, to 888 and the Nasdaq was off 38, or 2.96%, to 1275.
The negative tone was set early on by a sharp fall in Japan's Nikkei stock index, which lost 3.2% to 9217 -- its lowest close in nearly two decades. Other Asian and European markets also declined overnight. Stocks extended their losses after the Institute for Supply Management reported that its index of manufacturing was unchanged in August at 50.5. Economists had expected a reading of 51.8.
New orders declined to 49.7 from 50.4 in July and "are a cause for concern as we look at the balance of the year," according to Norbert J. Ore, chair of the ISM. The report also said many manufacturers were "anxious" about sales in the second half of the year.
Meanwhile, job cuts by U.S. corporations rose to a six-month high of 118,067 in August, according to Challenger Gray & Christmas.
Further weighing on sentiment were negative comments on a plethora of high-profile names. Intel (INTC:Nasdaq - news - commentary - research - analysis) slid 4% to 15.99 after Lehman Brothers analyst Dan Niles said the chipmaker is likely to cut its 2002 earnings per share estimate by a "few cents" and its 2003 estimate by as much as a nickel when it updates guidance on Thursday.
Niles believes the firm will narrow its range for third-quarter sales to between $6.4 billion and $6.7 billion from $6.3 billion to $6.9 billion. Analysts surveyed by Thomson Financial/First Call are projecting revenue of $6.61 billion.
Separately, Prudential analyst Mike Mayo cut his rating on Citigroup (C:NYSE - news - commentary - research - analysis) to sell from hold, citing concerns about Brazil, in which Citi has an $11 billion exposure, and lawsuits over Enron. Mayo believes legal damages against Citi and others could run to $50 billion.
The analyst now expects earnings in 2002 to fall about 10 cents below current estimates and said 2003 numbers could undershoot by as much as 20 cents. Mayo is ranked No. 1 among his peers for the accuracy of his stock picks, according to analyst tracker Investars.
Citi was also being pressured by an article in The Wall Street Journal, which said the office of New York Attorney General Eliot Spitzer is looking into the actions of senior Salomon Smith Barney officials who worked closely with recently departed telecom analyst Jack Grubman. The Citigroup unit has been under investigation for allegedly using positive research and shares in hot initial offerings to lure business to its investment banking side. Shares fell 5% to $30.92.
Elsewhere, Morgan Stanley cut its 2002 earnings estimate on fellow investment bank Goldman Sachs (GS:NYSE - news - commentary - research - analysis) to $4.04 from $4.15, citing weak mergers advisory revenue, equity trading and asset management.
In the auto space, Ford Motor (F:NYSE - news - commentary - research - analysis) was down 4% to $11.30 after UBS Warburg downgraded the stock to reduce from hold, and lowered the price target to $9.50 from $12.
News that IBM's acquisition of PricewaterhouseCoopers' consulting arm will result in 4,000 job cuts also added to the pessimistic tone, as did an expected bankruptcy filing by Consolidated Freightways (CFWYE:Nasdaq - news - commentary - research - analysis).
Investors are also nervous after the long holiday weekend because the market is entering a seasonally weak period. In the last half century, the Dow and S&P have seen their biggest percentage losses in September, according to the Stocks Trader's Almanac.
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