Stocks stumbled lower on Monday after news over the weekend that embattled energy trader Enron Corp. (ENE) would file for bankruptcy, representing what would be the largest corporate collapse in U.S. history.
Also weighing on the market was disturbing news from abroad with an escalation of violence in the Middle East and Argentina's economy move toward the brink thanks to massive debt problems.
"The precarious situation in the Middle East made investors jittery" despite some favorable economic numbers that came out early in the session, says Stephen Carl, principal and head of U.S. equity trading for The Williams Capital Group.
Enron's fall came after suitor Dynegy Inc. (DYN) last week backed out of a merger deal with Enron. Enron is suing Dynegy for pulling out and Dynegy is countersuing. Enron on Monday also said it was laying off 4,000 employees or about half its work force in its headquarters city.
Banks with exposure to Enron, including J.P. Morgan Chase (JPM) and Citigroup (C) were taking a hit.
The weakness in the major averages came despite some brighter economic news. The National Association of Purchasing Managers' index, a closely-watched gauge of the health of the manufacturing sector, rose to 44.5 in November from an 39.8 in October, much higher than Wall Street's median forecast of 42. New orders jumped to 48.8 from 38.3 and employment rose to 35.7 from 35.1. Any number below 50, however, still represents a contraction.
Standard & Poor's MMS notes that the NAPM says that manufacturing may be picking up, but it is still too early to call the trend a recovery.
Also, U.S. construction spending surged 1.9% in October after a revised 0.7% drop in September (down 0.4% previously). Both public and private spending climbed, with public spending up 3.4% and private rebounding 1.5%.
And there was a record monthly gain in personal spending in October, signaling that consumers may not be as troubled by the economy and the war in Afghanistan as many have thought. U.S. personal spending jumped a record 2.9% in October after a revised 1.7% drop in September (down 1.8% previously). Personal income was unchanged, after a revised unchanged figure in September (down 0.1% previously).
The Dow Jones industrial average lost 87.60 points, or 0.89%, to 9,763.96. The Nasdaq composite index slipped 25.69 points, or 1.33%, to 1,904.89. The broader S&P 500 index was off 9.55 points, or 0.84%, to 1,129.90.
The U.S. dollar and oil and gold futures were all higher amid escalating violence between Israelis and Palestinians, Argentina's worsening debt problems and the Enron bankruptcy.
U.S. Treasuries were moderately higher at the expense of equities. Bond prices were able to withstand relatively sizable data gains in October from depressed month-earlier figures reflecting the September 11 attacks.
European markets were mixed the U.S. were lower.
In London, the Financial Times-Stock Exchange 100 index was off 39 points, or 0.75%, to 5,164.60 as the November CIPS Manufacturing Index fell to 45.6 from 46.5, the ninth consecutive monthly decline. In France, the CAC 40 was off 12.22 points, or 0.27%, to 4,463.84. Germany's DAX Index eased 1,47 points, or 0.03%, to 4,988.44.
Asian markets closed lower. In Japan, the Nikkei sank 326.82 points, or 3.06%, to 10,370.62 after steep losses in financial and technology shares sent the market lower, reflecting uncertainty over the U.S. economy and concern over Japan's financial system.
Hong Kong's Hang Seng index eased 124.10 points, or 1.10%, at 11,155.15.