Following a week of strong gains, stocks posted sharp losses Monday on light volume amid disappointing economic report and the latest talk of a possible terrorist attack.
The Conference Board's April index of leading economic indicators fell 0.4%, which is weaker than the 0.2% decline forecast by economists.
Not helping matters were remarks from Vice President Dick Cheney Sunday that a new attack on the nation was "almost certain." U.S. intelligence members have picked up signals that the terrorist organization al Qaeda may soon strike.
Monday's dismal start doesn't bode well for the rest of the week, says Larry Wachtel, Prudential Securities market analyst. "There's not much to chew on," he says. Investors will get few economic reports including durable goods orders and the latest new home sales report, but that's about it. Several retailers including Home Depot (HD) will be releasing their latest updates, but "there won't be any blockbuster earnings statements," Wachtel says.
"When you go through a week like last week and you don't have the fundamentals to sustain the gains, there's not a lot of incentive to do anything," Wachtel says. And Wall Street will get quieter toward the end of the week when many traders will be heading out early ahead of the Memorial Day holiday. "If we don't cut the mustard in the next two days, I don't know when we'll cut the mustard."
Tech concerns, which led the market's strongest one-week gain in more than 12 months last week, headed up the decline Monday. Selling has been most intense within the financial, airline and technology sectors of the market with wireless telecom, application software and the networkers under the most pressure, says Standard & Poor's MMS.
Investors are also wrangling with the latest news of accounting impropriety. U.S. authorities are reportedly investigating whether Computer Associates (CA) wrongly booked more than $500 million in revenues.
The biotech sector is under fire as several companies provide updates at the closely watched annual American Society of Clinical Oncology conference. ImClone Systems (IMCL) fell following disappointing data on the anti-tumor activity of its highly anticipated cancer drug Erbitux. Protein Design Labs (PDLI) also stumbled as the company reported that it will stop plans to file its cancer drug Zamyl for FDA approval.
Generic drug makers, on the other hand, got a boost from a UBS Warburg upgrade on the stocks. Teva Pharmaceuticals (TEVA) and Alpharma (ALO) were raised to a "strong buy" rating from a "hold." Ivax (IVX) and Mylan Labs (MYL) were rated "buy", up from "hold."
Telecom concern AT&T (T), which is also a Dow index component, was lower amid news that the Communications Workers of America said members approved an 18-month labor agreement with that gives 28,000 workers a 6% pay raise.
Among Monday's other stocks in the news, some well-known retailers posted earnings. Lowe's Cos. (LOW), the No. 2 home improvement retailer said that fiscal first-quarter earnings rose 54%. Lowe's also raised guidance for the current quarter and full year as homeowners continue to spend on home improvement supplies.
Women's apparel retailer The Limited (LTD) posted first quarter earnings per share of $0.15 compared with $0.05 (adjusted) on a 4% rise in same store sales and a 7.3% total sales rise.
The Dow Jones industrial average finished down 123.58 points, or 1.19%, to 10,229.50. Meanwhile, the Nasdaq Composite slipped 39.80 points, or 2.29%, o 1,701.59. And the broader Standard & Poor's 500 index fell 14.72 points, or 1.33%, to 1,091.88.
U.S. Treasuries finished higher in price as investors looked for bargains among sold-off government notes and shunned a weak equities market.
Concerns about political unrest may be prompting some of the interest in safe-haven Treasuries. The latest worries include a suicide bomber strike over the weekend in Israel and rising tensions between India and Pakistan over the disputed Kashmir region. Sources cited by S&P MMS also say that there has been fairly good demand from Japanese accounts after the dollar fell to 8-month lows versus the yen.
The April Treasury budget statement came in weaker than expected. The U.S. government posted a smaller-than-expected budget surplus in April in a report reflecting weak tax receipts for the crucial budget month.
European markets finished lower. London's FTSE 100 finished down 9.90 points, or 0.19%, to 5,208.10, amid nerves about a decline in U.S. stocks. France's CAC 40 index ended down 42.19 points, or 0.95%, to 4,400.75. Germany's DAX index was off 37.42 points, or 0.95%, to 4,998.99, amid news that German metal workers accepted a new wage package.
Asian stocks ended higher. Japan's benchmark Nikkei 225 index added 9.22 points, or 0.08%, to 11,856.54, amid a declaration by the Japanese government that the country's economy has hit a bottom. Hong Kong's Hang Seng stock was closed for Buddah's birthday. Last Friday the index rallied 141.84 points, or 1.20%, to 11,974.61.