M A R K E T .. S N A P S H O T -- Stocks need time to heal
Accounting worries leave shares lower in January
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 12:10 AM ET Feb 2, 2002
NEW YORK (CBS.MW) -- Stifled by mounting concerns over companies' accounting practices, the stock averages closed out the first month of the new year on a down note.
The Dow industrials rose 0.7 percent in the week but lost 1.1 percent during the month of January. The Nasdaq fell 1.3 percent for the week and finished last month with a 2-percent loss. Finally, the broader S&P 500 closed the week down 1 percent and January off 2.3 percent.
The week was characterized by whippy action. Market followers expect more back-and-forth moves over the next weeks as investors work their way through a host of worries.
"The market has been manic-depressive, with some major damage done to specific stocks this week," said Peter Boockvar, equity strategist at Miller, Tabak & Co.
Boockvar said investors have been emotionally scarred by the Enron fallout and are fearful that accounting scandals will be mushrooming left and right. The rout in shares of Tyco, Cendant and Elan this week was a testament to the widespread jitters among Wall Street investors.
"It'll take time to regain investors' trust and the market will thus continue to be choppy," he concluded.
"Investors will need to gain confidence in a near-term economic recovery, improving profits for the coming year, and the commitment by firms to follow sound accounting standards," echoed Lynn Reaser, chief economist and senior market strategist for Banc of America Capital Management.
One strategist said it seems the one thing investors can count on is unpredictability.
"The market seems to do its best to be unpredictable. It had the appearance of falling off the cliff on Tuesday but [rebounded Wednesday and Thursday]," echoed Robert Dickey, technical strategist at RBC Dain Rauscher.
With plenty of resistance to work through on all the major indexes, he said attempts at establishing an uptrend will likely have trouble carrying too far.
"The Dow and Nasdaq were stuck in ranges of 9,700 to 10,300 and 1,900 to 2,100 for nearly two months. Now that they have broken to the downside, it will require another relatively long period of rebuilding before the indexes will begin uptrends of any significance," Dickey commented. He added that growing fears among investors have stoked another surge into the perceived safety of defensive names in the food and healthcare groups.
The week's earnings
The earnings season winds down substantially next week. Among the few reports on tap: Priceline.com, Sprint, Williams Communications, Occidental Petroleum, Rohm & Haas, Elan, Clorox, CVS, Colgate-Palmolive, Pharmacia, Cisco Systems, Anheuser-Busch, John Hancock, Devon Energy, Allstate, WorldCom, American International and Cigna.
About 70 percent of S&P 500 companies have reported their results, with final numbers likely to show a 22 percent decline in fourth-quarter earnings, Thomson Financial/First Call said.
The earnings compiler said that, on average, results for those 70 percent were exceeding expectations by 1.1 percent. Tech sector earnings came in 24 percent over the final estimates while energy came up 8 percent short, closely followed by financials with a 4-percent shortfall vs. projections.
First Call stressed that the deceleration in warnings that began late in the fourth quarter has transferred over to the first quarter, assuring an upturn in earnings for later in the year. The 173 negative pre-announcements for the first quarter so far are 2 percent below those of the first quarter of last year and over 30 percent below those of the second, third and fourth quarters of 2001.
In the meantime, the pace of positive pre-announcements for the first quarter has accelerated, First Call noted. While still extremely early in the pre-announcement season, the 88 positives thus far are 35 percent above those at the equivalent point in the first quarter of last year.
For the first quarter, First Call said analysts are currently expecting a 7.9 percent decline, though it expects the final results to likely show a decline of about 16 percent.
Light data week
Next week's economic data calendar will be feather-light and feature mostly second-tier reports.
Among the numbers on tap: December factory orders, the January non-manufacturing index from the Institute of Supply Management, the fourth-quarter productivity report, December consumer credit, weekly initial claims and the December wholesale trade numbers. Check economic calendar and forecasts.
Friday's trading activity
Stocks finished out the week with red ink on Friday, as buyers appeared satiated following two straight sessions of meaty gains. A mixed bag of economic news failed to provide cues, with a larger-than-expected decline in jobs countering an improvement in a key manufacturing index.
The Dow industrials dipped 0.1 percent, mostly on weakness in its financial components. The blue-chip barometer's downside was capped by Walt Disney's rally on the coattails of a better-than-expected profit report. Downside in the tech sector was deeper and the Nasdaq was dragged down 1.2 percent.
In sector action, financial, airline, retail and paper issues wilted while biotech, utility, natural gas, oil and defense stocks gained traction. And the gold sector ($GOX) closed with the best gains gold futures climbed to their highest level in two weeks, buoyed by seasonal strength in demand. Within technology, investors avoided Internet and networking shares. Check market stats and latest sector performance.
The Dow Jones Industrial Average ($INDU) erased 12.74 points, or 0.1 percent, to 9,907.26. Ending in the red were the shares of J.P. Morgan Chase, American Express, Citigroup, AT&T, Alcoa and McDonald's. Staging a healthy move higher were shares of Walt Disney, United Technologies, 3M, Procter & Gamble, Boeing and Coca-Cola.
The Nasdaq Composite ($COMPQ) declined 22.79 points, or 1.2 percent, to 1,911.24 while the Nasdaq 100 Index ($NDX) slumped 22.02 points, or 1.4 percent, to 1,528.15.
The Standard & Poor's 500 Index ($SPX) erased 0.7 percent while the Russell 2000 Index ($RUT) of small-capitalization stocks lost 0.6 percent.
Volume came in at 1.37 billion on the NYSE and at 1.71 billion on the Nasdaq Stock Market. Market breadth was sloppy, with decliners outpacing advancers by 17 to 14 on the NYSE and by 20 to 15 on the Nasdaq.
Meanwhile, Treasury bonds extended gains, with upside clustered in the long end as stocks soured after some early uncertainty.
The 10-year Treasury note was up 1/2 to yield ($TNX) 4.98 percent while the 30-year government bond climbed 19/32 to yield ($TYX) 5.395 percent.
In the currency sector, the dollar dropped 1.2 percent to 133.08 yen after rallying on Thursday while the euro inched up 0.3 percent to 86.18 cents.
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