Stocks closed sharply lower on Monday, with the major averages breaking below their May lows, as negative corporate headlines weakened investor confidence in Wall Street. The tide of bad news included the abrupt resignation of the CEO of a major conglomerate amid reports he was the subject of a tax evasion probe, and the apparent suicide of the CFO of a large energy company.
The Dow Jones industrial average plunged 215.46 points, or 2.17%, to 9,709.79. The Nasdaq composite index lost 53.17 points, or 3.29%, to 1,562.56. The Standard & Poor's 500 Index shed 26.46 points, or 2.48% to 1,040.68. Among the sectors suffering the worst losses were semiconductors, biotechs, telecoms, cyclicals, and financials.
While there was some positive economic news on Monday, corporate developments took center stage. The markets were rattled by the resignation of Tyco (TYC) CEO Dennis Kozlowski in the wake of a press report that he was under investigation in a criminal sales tax evasion probe in New York. Tyco's ex-CEO John Fort will serve as interim chief executive. Shares of Tyco lost more than 5 points to finish just above $16.
In the energy sector, the treasurer of natural gas pipeline operator El Paso (EP), one of several energy trading companies reeling over questions about its accounting practices, was found shot dead in an apparent suicide at his home, police said Monday, according to wire-service reports. There was no immediate indication the death on Sunday of Charles Dana Rice was directly related to the company's troubles. According to industry executives, he was known to suffer from some health problems. Shares of El Paso were down more than $3 to close just under $22.
But there was plenty of excitement from the corporate front even before the opening bell. Share dealer Knight Trading Group (NITE) eventually resumed trading after it was halted on pending news. Before the open, the stock plunged on market speculation the trading company, a Nasdaq market-maker, was the subject of investigations by federal authorities.
But in a prepared statement, Knight said there are no corporate developments at the company to warrant the unusual trading Monday morning. "We have identified and are working to correct a software glitch in the Knight trading system that affected only Knight's stock. The glitch generated a large series of sell limit orders in Knight stock, which were routed to various destinations and disrupted trading in our security," said the company, adding that it was operating under normal operating conditions without interruptions.
With Wall Street's credibility in question, market players looked past a better-than-expected economic report on the manufacturing sector released early in the session. The Institute for Supply Management's (ISM) manufacturing index for May rose to 55.7 from 53.9 in April. Gains were broad-based, notes S&P MMS, with the key new orders component jumping to 63.1 from 59.0 -- a development that bodes well for continued growth later in the year. Employment edged up to 47.3, from 46.7. One component of the report appeared to trouble an inflation-wary Wall Street: prices paid rose to 63.0, from 60.3.
In other economic news, U.S. construction spending rose 0.2% in May from a downwardly revised -1.2% in April (from -0.9%), compared to the 0.2% median decline forecast.
Treasuries overcame the better-than-expected readings on the ISM and construction spending reports to finish higher in price Monday. The market erased earlier losses as stocks were hit with a wave of negative corporate news.
Looking ahead to the end of the week, economic reports are due June 7 on the May unemployment rate, and wholesale inventories and consumer credit in April.
Markets in London were closed Monday in observance of the Queen's Jubilee. On May 31, the FTSE gained 44.30 points, or 0.88%, to 5,085.10.
In France, the CAC 40 finished down 47.49 points, or 1.11%, to 4,227.15, as the French purchasing managers index rose to 52.8 in May from 51.7 in April.
In Germany, the DAX Index ended down 70.35 points, 1.46%, to 4,747.95, as the German May purchasing managers index rose to 49.7 from 49.1 in April.
Asian markets ended with gains. In Japan, the Nikkei 225 index rose 137.69 points, or 1.17%, to close at 11,901.39. In Hong Kong, the Hang Seng index climbed 57.86 points, or 0.51%, to close at 11,359.80.