Stocks were broadly lower Tuesday as accounting and valuation concerns continued to plague the markets. In the latest development, IBM Corp. (IBM) reportedly says that in response to requests from shareholders and analysts, it will begin revealing details of its financial income that it previously recorded as offsets to its expenses in its quarterly and annual reports.
That news offset positive economic data that provided more evidence that the economy is recovering. Housing starts jumped 6.3% in January to a 1.678 million annual pace, well above expectations, thanks to warm weather and low mortgage rates. December starts were revised a bit higher to a 1.579 million rate from 1.570 million previously. Permits rose 3.1% to a 1.706 million rate. As the economic effects of the Fed easing in 2001 kick in, and as the economy recovers, the housing sector should remain robust, says S&P's economic research unit MMS.
Among Tuesday's sectors on the move, financial stocks were lower amid worries about relationships between investment banks and Enron (ENRNQ), as well as concern that more accounting troubles are lurking at other corporations. In particular, Dow component J.P. Morgan Chase (JPM) was lower after shareholders filed a class-action lawsuit alleging the company issued misleading statements about its Enron exposure. Telecommunications and wireless stocks also fell on continuing concerns about high debt levels and accounting issues.
The Dow Jones industrial average dropped 159.30 points, or 1.61%, to 9,743.83. The Nasdaq Composite closed at its lowest level of the year, skidding 55.35 points, or 3.07%, to 1,749.85, dragged lower by tech-related stocks. And the broader Standard & Poor's 500 index declined 20.97 points, or 1.90%, to 1,083.21.
There was a spate of company news moving stocks Tuesday. TRW Inc. (TRW) announced the resignation of Chairman and CEO David M. Cote, who will become chief of Honeywell International (HON). UAL Corp.'s (UAL) United Airlines unit and its machinists union reached tentative deal that will avert a possible strike.
Electric power supplier AES Corp. (AES) shares skidded after it announced plans to restructure by divesting certain assets and cutting capital expenditures. In response, S&P upgraded the stock to hold from avoid.
Retail giant Wal-Mart Stores (WMT) reported fourth-quarter earnings of $0.49, up 9.2% from a year ago and in line Wall Street's expectations, on a 14% jump in revenue. The company also gave an upbeat earnings outlook.
In the tech sector, Nokia Corp. (NOK) shares dropped amid investor disappointment about a new phone launch. Sun Microsystems (SUNW) lost ground after SoundView reportedly downgraded the stock to hold from buy. And graphics chipmaker NVIDIA (NVDA) kept sliding after Standard & Poor's placed the company's B-plus corporate credit and other ratings on CreditWatch with negative implications. On Friday, the company said that the Securities and Exchange Commission is investigating its accounting practices.
In merger news, Ciena (CIEN) says it will acquire ONI Systems (ONIS) in deal valued at about $900 million. And Sabre Holdings (TSG) plans to make a $23 per share cash tender offer for all shares of Travelocity.com (TVLY) that it does not already own. Sabre Holdings currently has about 70% stake.
Treasuries were mostly lower in price on profit-taking after Friday's gains, along with the strong housing starts data for January.
European stock markets closed lower. London's FTSE 100 index ended with a loss of 61.80 points, or 1.2%, to 5,092.50, weighed down by telecommunications heavyweights BT Group and Vodafone. Germany's Xetra DAX skidded 98.55 points, or 2.02%, to 4,773.21. German car makers were weak ahead of full-year earnings from Volkswagen and DaimlerChrysler.
In France, the CAC 40 Index declined 90.69 points, or 2.09%, to 4,256.36, dragged lower by France Telecom and its mobile-phone unit Orange. Telecom-equipment maker Alcatel lost ground after a downgrade of the stock's rating by Moody's.
Asian markets closed lower. In Japan, the Nikkei lost 246.09 points, or 2.44%, to close at 9,847.16, dragged down mostly by financial stocks. A broad sell-off followed an uneventful set of bilateral talks between Prime Minister Koizumi and President Bush, revealing disappointment that no substantive economic and financial reform measures were unveiled. Hong Kong's Hang Seng index declined 162.32 points, or 1.48%, to end at 10,840.49.