Market stalls amid accounting concerns and general anxiety
Tuesday, February 5, 2002
AP Business WriterNEW YORK (AP) -- Wall Street's hope for a rebound fizzled Tuesday, with investors drawn to the stock market's relatively cheap prices but hesitant amid continuing questions about accounting practices. Stocks fluctuated throughout the session before closing modestly lower.
Analysts said investors were held back by fears that other companies might be vulnerable to bookkeeping scandals like Enron's. News that Congress was unlikely to pass an economic stimulus package made investing an even tougher sell.
"It's extremely tentative out there," said Hugh Johnson, chief investment officer at First Albany Corp. "This Enron thing has done some real damage to investor confidence."
The Dow Jones industrial average closed down 1.66 at 9,685.43, extending a two-session, 232-point losing streak.
Broader stock indicators showed slightly larger declines. The Standard & Poor's 500 index lost 4.42, or 0.4 percent, to 1,090.02, and the Nasdaq composite index slipped 17.01, or 0.9 percent, to 1,838.52.
The selling was in line with what has so far been a disappointing year for the market. Stock prices have been drifting consistently lower as investors try to reconcile mostly weak earnings forecasts with their hopes of a speedy recovery. Those doubts have been exacerbated by the Enron debacle, which has made investors nervous about trusting the reliability of corporate bookkeeping in general.
In trading Tuesday, Reliant Resources slid $1.87, or 13.5 percent, to $11.95 on word it was restating its earnings for the second and third quarters of 2001 and postponing release of its fourth-quarter results because of internal accounting errors with certain gas and power transactions. Its parent company, Reliant Energy, fell $1.98, or 8 percent, to $22.94.
Tyco tumbled $6.80, or 22.7 percent, to $23.10, building on a selloff that began last week on fears the conglomerate's financial statements don't reflect the true health of the business. The losses grew Monday on a Wall Street Journal report that Tyco had spent about $8 billion in the past three fiscal years on more than 700 acquisitions never announced to the public. Two credit rating agencies also downgraded some of the company's debt.
"This is kind of an Enron hangover," said Brian Belski, fundamental market strategist at US Bancorp Piper Jaffray. "The market is in the process of trying to determine the difference between accounting that meets regulations and accounting that's fraudulent."
Investors also sold Ciena after the optical networker reduced forecasts for the first fiscal quarter, cut 400 jobs and said second-quarter sales will be flat or down. Ciena dropped $1.12 cents to $9, a loss of 11 percent.
General Electric, a Dow component, fared better, recovering some of its loss from Monday's broad selloff. The stock rose $1.21 to $36.21, after GE reaffirmed its expectations for profit growth this year.
Honeywell also benefitted from bargain hunting, climbing 69 cents to $32.76.
But overall, the market's mood was gloomy. Stocks did manage a brief bump up in the afternoon, but that evaporated when Senate Majority Leader Tom Daschle indicated an economic stimulus package would likely be shelved for lack of votes. Many had hoped the measure could help bring the nation out of recession.
Johnson, the First Albany strategist, said it's important to remember that, at its core, the market's downturn reflects fundamental doubts about stock prices and the market's performance going ahead.
Stocks rose sharply during the last three months of 2001 on a rebound from the post-terror attack selloff and optimism about the future. But the market's upbeat mood has dissipated -- although economic data has steadily improved, most corporations have yet to say business is strengthening.
Also Tuesday, Federal Reserve Chairman Alan Greenspan testified before the Senate Banking Committee, but his topic was financial literacy, not the markets or economy.
Wall Street took little notice of a Commerce Department report showing orders to U.S. factories rose by 1.2 percent in December, with gains posted for semiconductors, household appliances and machinery.
Declining issues led advancers nearly 3 to 2 on the New York Stock Exchange. Volume came to nearly 1.75 billion shares, ahead of the 1.44 billion shares reported Monday.
The Russell 2000 index dropped 1.27 to 468.82.
Overseas, Japan's Nikkei stock average fell 1.6 percent. In Europe, Germany's DAX index lost nearly 1.0 percent, Britain's FT-SE 100 slid 1.4 percent, and France's CAC-40 fell 2.0 percent.
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