Widespread sell-off slams stocks
Dow at 2 1/2-month low, Nasdaq off 2.6%
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 5:25 PM ET Jan 29, 2002
NEW YORK (CBS.MW) -- A widespread selling spree hammered equities Tuesday, pushing the Dow Industrials to a two-and-a-half-month low. Financial stocks closed with severe declines while energy issues plunged following a warning from Williams Cos. and a brutal earnings miss from ChevronTexaco.
Throwing more uncertainty into the fray was the Fed's two-day policy-setting meeting, with a decision on rates expected Wednesday afternoon.
The Dow industrials closed at its lowest level since Nov. 12, with only two of its 30 components ending higher. The Nasdaq finished at a 2-month low.
The bank sector came under great pressure as investors fretted over the impact from the Enron fallout and the Argentine crisis following an ugly quarterly report from FleetBoston Financial. And a plunge in shares of Tyco highlighted just how closely investors are scrutinizing companies' accounting practices in the aftermath of the Enron meltdown.
"Most of what we're seeing Tuesday is the ripple effect from Enron. As you peel away at the story, investors are questioning accounting methods more and more and the bears are feasting on it," remarked Bryan Piskorowski, market commentator at Prudential.
"Investors are clearly worried about more skeletons in the closet," echoed Stephen Carl, head of U.S. equity trading at The Williams Capital Group.
The Dow Jones Industrial Average ($INDU) declined 247.51 points, or 2.5 percent, to 9,618.24 after rising as much as 43 points out of the gate. J.P. Morgan Chase, IBM, American Express, Citigroup, General Electric and Hewlett-Packard led on the downside while Merck and SBC Communications nudged higher.
The Nasdaq Composite ($COMPQ) slid 50.92 points, or 2.6 percent, to 1,892.99 while the Nasdaq 100 Index ($NDX) declined 45.53 points, or 2.9 percent, to 1,519.33.
In tech sector action, chip stocks were unable to benefit from a rally in Texas Instruments on the back of better-than-expected results while hardware and Internet issues took the biggest lumps. The broader market witnessed the headiest losses in the financial sector following shabby results from FleetBoston. Only the defensive gold sector finished higher. Check market stats and latest sector performance.
The Standard & Poor's 500 Index ($SPX) tumbled 2.9 percent while the Russell 2000 Index ($RUT) of small-capitalization stocks fumbled 1.5 percent.
"Bids dried up while sell programs were aggressive and it just snowballed in the afternoon. But good economic news will provide some solace once this [cloud lifts]," Piskorowski said.
Volume was heavy at 1.76 billion on the NYSE and at 1.89 billion on the Nasdaq Stock Market. Market breadth was sharply negative, with losers smashing winners by 22 to 9 on the NYSE and by 24 to 12 on the Nasdaq.
Check for trading after the official closing bell.
No more cuts?
Economists are expecting the Fed to stand pat on rates following 11 cuts in 2001, which took the fed funds rate from 6.50 percent to 1.75 percent. An upbeat speech from central bank chief Alan Greenspan last Thursday squashed all remaining expectations for another helping hand from the Fed.
Still, market observers believe the Fed will retain a bias to ease and will be closely examining the wording in the statement released at the conclusion of the meeting for cues on the future course of monetary policy.
"I think the Fed meeting will be a non-event. Rates have already gone down all they will," remarked Patrick Adams, president and portfolio manager of Choice Investment Management.
Adams believes investors will pay more attention to President Bush's State of the Union address Tuesday evening to gauge the emphasis he places on the stimulus package.
A double dose of positive econ news
Investors enjoyed two better-than-expected economic reports, though the market failed to get any mileage from the news.
The January consumer confidence index rose to 97.3 from December's upwardly revised 94.6 and higher than expectations for a 96 reading.
Joel Naroff of Naroff Economic Advisors said households expect business conditions to get better, claiming that it's only a matter of time before they start acting on those beliefs.
"Barring some unforeseen event -- the one big unknown for the economy -- we are coming out of it and growth should become evident quite soon. Will it be strong enough to get the Fed to start tightening before the second half of the year? That is unclear, but ... it would not be surprising if the FOMC members want to start unwinding their extremely aggressive position sooner than is currently believed," Naroff said.
In other news, December durable goods orders rose 2 percent, more than expectations for a 1.2 percent climb. Excluding transportation orders, durables gained 1.4 percent and rose 1.7 percent excluding defense. .
Wednesday will see the release of the advance reading on fourth-quarter gross domestic product, which is expected to register a decline of 1.2 percent. Check economic calendar and forecasts.
Dow stock gyrations
Dow company Coca-Cola (KO) posted fourth-quarter earnings that matched the Wall Street consensus estimate. Looking ahead to 2002, Coca-Cola said it expects currency neutral earnings from underlying operations to grow in line with its long-term expectations of 11 to 12 percent. ABN-Amro downgraded Coke to an "add" from a "buy," citing a deteriorating outlook for near-term catalysts. The stock erased 2.7 percent.
And Dow stock Honeywell (HON) reported fourth-quarter results that were in line with the Wall Street consensus estimate. Looking ahead, Honeywell said the near-term economic outlook will present difficulties in the first-half of 2002 but expects full-year 2002 EPS of $2.36 vs. the $2.32 expected by analysts. Shares gave back 3.6 percent.
Drug giant and Dow component Merck (MRK) ascended 0.9 percent after announcing its intention to spin off its prescription drug unit, Merck-Medco, as a separate publicly-traded company by mid-2002. Merck also said its 2002 outlook for operating earnings in its core pharmaceutical business remains unchanged and said 2003 earnings should grow at a "double-digit" rate. Fellow Dow component Johnson & Johnson closed down 1.1 percent.
Finally, IBM (IBM) fell a hefty 4.8 percent. The company announced that Samuel Palmisano would replace Lou Gerstner as CEO of Big Blue. Palmisano became company president in July 2000.
Sector and specific stock action
The Williams Cos. (WMB) tumbled 22.2 percent, provoking a 4 percent slide in natural gas issues ($XNG). The company said its 2001 earnings would fall well below Wall Street's estimates because of charges incurred from its credit exposure to Enron. Williams will take a fourth-quarter charge of 12 cents a share related to Enron. J.P. Morgan Chase lowered its view on the company to a "market performer" from a "buy."
In the oil patch, an ugly earnings miss from ChevronTexaco (CVX) ruffled the entire group. Chevron posted a fourth-quarter profit from operations of 47 cents a share while First Call had expected a profit of 90 cents a share. The second-largest oil company struggled as natural gas and crude prices slid and saw its shares drop 4.2 percent. Dow stock Exxon Mobil erased 2.6 percent. And Mirant (MIR) declined 7.7 percent even after reassuring investors that it had sufficient liquidity to conduct its business operations despite recent credit downgrades.
Tyco (TYC) sold off 20 percent and was the volume leader on the NYSE throughout the trading day following a disclosure that it paid a $10 million fee to one of its directors and another $10 million to a charity he controls. In the afternoon, Tyco released a statement indicating that its board felt the payment made was "appropriate," though selling in the shares didn't let up.
And Cendant shares (CD) dropped 10 percent even after the company sought to reassure investors with its announcement that fourth-quarter and 2002 results should top analysts' current expectations. The downward spiral began as investors showed concern over the travel services company's off-balance sheet partnerships.
Texas Instruments (TXN) was a standout, rallying 5.6 percent after posting late Monday a fourth-quarter loss from operations that was narrower than the Thomson Financial/First Call estimate. Merrill Lynch upped the TI to an intermediate term "buy" from a "neutral."
In other earnings news, FleetBoston Financial (FBF) reported a fourth-quarter loss of 49 cents a share as opposed to a profit of 81 cents a share in the year-ago quarter. The bank took a $538 million after-tax charge to write down loans and set aside funds for its Argentina exposure and had delayed releasing its results to better gauge the Argentina effect. The company wasn't very optimistic going forward, indicating that it expects the U.S. economy to continue to deteriorate. The Boston bank said it's generally comfortable with earnings-per-share in the range of $3.15 to $3.25 for 2002, which compares to the $3.20 estimate from Thomson Financial/First Call. FBF shares declined 6.4 percent. And PNC Financial (PNC) tumbled 9.4 percent after telling investors that it consolidated three subsidiaries of a third party financial institution in which it has a preferred interest. Read more.
And Qwest Communications (Q) ended down almost 5 percent after posting a larger-than-expected fourth-quarter loss as sagging demand ate away at its bottom line. Among other telecom stocks, WorldCom (WCOM) got slammed with a 13.3-percent decline on speculation that its credit rating would be lowered. A company spokesperson refuted the talk. Read the related Pulse item.
While lower, retail issues ($RLX) posted modest declines compared to other groups as some relief was provided by Limited (LTD) and Intimate Brands (IBI), both of which rallied following upgrades from Prudential to a "buy" from a "hold." Prudential cited the companies' improving fundamentals and the potential for operating margin recovery. Limited added 2.3 percent and Intimate Brands 2.6 percent.
Check for the latest individual stock action.
Treasury and econ focus
Government bonds shot higher as stocks took a nosedive.
The 10-year Treasury note was up 26/32 to yield ($TNX) 4.95 percent while the 30-year government bond surged 1 3/32 to yield ($TYX) 5.395 percent.
In the currency sector, the dollar shed 0.2 percent to 133.28 yen while the euro edged up 0.4 percent to 86.54 cents.
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