Stocks finished at session lows Monday amid worries that current stock valuations are too high for the anticipated economic rebound in 2002.
Last week, favorable economic news suggesting a recovery this year sent major stock indexes to their best levels since August. The strong start to the year was led mostly by the tech sector. Even as Wall Street got some positive signs for the tech sector Monday, investors' worries over the strength of fourth quarter corporate results overshadowed early gains in the session.
The Dow Jones industrial average slid 62.69 points, or 0.61%, to 10,197.05. The tech-heavy Nasdaq composite index fell 22.27 points, or 1.08%, to 2,037.11. The broader S&P 500 index was off 7.62 points, or 0.65%, to 1,164.89.
The results of AOL Time Warner's (AOL) analyst meeting could deal markets another blow Tuesday. After Monday's close, the closely watched media giant said it would take a one-time charge of $40 billion to $60 billion in the first quarter, citing new accounting rules.
More importantly, as many on Wall Street feared it might, the company pulled back its forecast for earnings growth for the year, pointing to the weak economy. It expects earnings before interest, taxes, depreciation and amortization, to grow 8% to 12%, with no growth in the first quarter. AOL had previously promised double-digit EBITDA growth for 2002. The company expects revenue growth of 5% to 8%.
On Monday, Compaq Computer (CPQ) said it expects fourth-quarter revenue to exceed $8 billion, yielding a profitable quarter. Compaq previously forecasted revenues of $7.6 billion to $7.8 billion and a $0.03 per share loss.
Analysts are also getting more upbeat about beleaguered tech stocks as the outlook for the economy improves. For one, BEA Systems (BEAS) climbed after Goldman Sachs added the stock to its list of recommended stocks. Robertson Stephens upgraded Dell Computer (DELL) to buy from market perform, citing strong quarterly results and a solid outlook for 2002.
But not all stocks were getting kudos Monday. Among Dow Industrials stocks, Coca-Cola Co. (KO) slipped after J.P. Morgan downgraded the shares. The analyst cited the company's macro-economic challenges including unfavorable exchange rates and declining growth in global case volume.
Eastman Kodak (EK), another Dow member, was under pressure after the company announced the resignation of its chief operating officer, who will take the top job at battered telecom concern Lucent Technologies (LU).
U.S. Treasuries finished higher amid weakness in equities. No economic releases were released Monday. Argentina's debt default and currency devaluation were underlying currents in the market, says Holly Lis of Fuji Securities. Bargain hunting was also fueling gains in Treasuries.
Traders will mull over two speeches by Fed chief Alan Greenspan later in the week. Otherwise, economic data for the week are sparse. The most closely-watched report will be the reading on December producer prices, expected Jan. 11. Headline producer prices are expected to continue falling, notes S&P MMS, while core prices are seen ticking up a subdued 0.1% on the month.
Also this week, reports on factory orders and consumer credit are set for release on Jan. 8 and weekly jobless claims and wholesale inventories updates are due on Jan. 10.
European stock markets finished lower, with French media giant Vivendi Universal heading up losses. Profit-taking following a strong week also pressured major indexes. In London, the Financial Times-Stock Exchange 100 index finished down 30.20 points, or 0.57%, to 5,293.60. In France, the CAC 40 ended down 67.25 points, or 1.44%, to 4,615.54. In Germany, the DAX Index fell 86.51 points, or 1.63%, to 5,232.22.
In Asia, the markets closed higher. Japan's Nikkei added 70.87 points, or 0.65%, to 10,942.36, after investors jumped in to pick up beaten-down technology and banking stocks. In Hong Kong, the market added 190.49 points, or 1.63%, to 11,892.64.