Stocks finished with losses Monday as investors worried over the latest disappointing economic updates, after giving up early gains spurred by geopolitical events that may delay U.S. plans for war with Iraq.
The Dow Jones industrial average finished down 53.22 points, or 0.67%, to 7,837.86. The broader Standard & Poor's 500-stock index was off 6.34 points, or 0.75%, to 834.81. Meanwhile, the tech-laden Nasdaq composite index lost 17.22 points, or 1.29%, to 1,320.30.
Looming war and worries over the sputtering economic recovery continue to put investors in a profit-taking mood even on the smallest of gains. "The lack of total trading volume speaks loudly to the fact that the market action is in the hands of traders, not longer-term investors," says Paul Cherney, chief market analyst for Standard & Poor's.
Monday's negative finish does not erase what Cherney sees as a "positive tone" in the price pattern established over the past five trading days. Still, the selloff after early gains Monday suggests that "there has to be some sort of a short-term shake-out to clear the overhead air of sellers. Meantime, Cherney expects the S&P 500 index to continue trading within a broad trading range.
No major economic reports are due Tuesday. However, several companies reporting quarterly earnings updates will offer a picture of how consumers are holding up. Among them: women's clothier Chico's FAS (CHS), value-priced department store Kohl's (KSS) and Martha Stewart Living (MSO).
On Monday, the Institute of Supply Management (ISM) index of manufacturing activity showed continued expansion with a reading of 50.5 in February, down from a revised 53.9 reading in January. The latest reading was weaker than expected. "The ongoing declines in inventory and employment continues and always made the recent strength in this index suspect," says Trip Jones, senior vice president at Fulcrum Global Partners.
In other economic data, January personal income rose 0.3% while spending declined 0.1%. Results were modestly lower than expectations. Spending on durables (autos) fell 5.7%, the largest decline since February 1990. With the looming war, Jones doubts that auto makers this time around will introduce the rebates that helped spur buying a year ago.
Over the weekend, several events provided headlines that helped to ease worry that war with Iraq is imminent. For one, the U.S. government reported the arrest of a key al Qaeda leader in Pakistan. Khalid Sheikh Mohammed is believed to be one of the engineers of the September 11 attacks.
News that Iraq is destroying some if its missiles and agreed to submit a report on its stock of biological warfare agents in a week was also helping investor sentiment. Meanwhile, the failure by Turkish lawmakers to approve the use of military bases in that country by U.S. troops could delay any U.S.-led strike against Iraq.
Earnings continue to be dismal for most tech companies. Palm (PALM), maker of handheld devices, warned third-quarter results would be lower than expected on weak U.S. sales. The company will also take restructuring charges between $40 million and $45 million, along with a real-estate related charge of $100 million.
The Semiconductor Industry Association said that worldwide sales of chips totaled $12.2 billion in January, down 2.4% from December, but up 22% from a year ago. The industry group predicts "double-digit" percentage sales growth over 2003, as information technology spending recovers. The group predicts that IT spending will rise 4% to 7% in 2003 and PC sales will grow 10 to 14%.
Among other stocks in the news, shares of credit card company Capital One Financial Corp (COF) tumbled amid news that its CFO David Willey will resign after he received a Wells Notice from the Securities and Exchange Commission. The agency plans to bring civil action against Willey for insider trading.
Healthsouth (HRC) shares were lower after the company, which operates physical therapy centers, reported a fourth-quarter loss of $1.03 per share, compared with a profit of $0.17 a year ago. The company has been trying to exit certain businesses, claiming that Medicare payments would not cover the cost of running its rehab centers.
U.S. Treasuries finished mostly higher, with the 30-year lower, Monday in a volatile session. Earlier, safe-haven investors lightened positions amid good geopolitical news, says economic research group MMS International, but weakness in stocks brought traders back in to Treasuries.
U.S. construction spending rose 1.7% in January to $877.9 billion from an upwardly revised 1.5% gain in December. This is the largest rise since January, 2002, but the data should take a back seat to the drop in ISM, which could provide some comfort for Treasuries at the expense of stocks and the dollar, says MMS.
European markets finished mostly higher on hopes that an Iraq war may be delayed. In London, the FTSE 100 index finished up 29.10 points, or 0.80%, to 3,684.70, though reports of U.K. manufacturing contraction and a rise in Halifax housing prices dampened sentiment. In Paris, the CAC 40 index finished up 8.18 points, or 0.30%, to 2,762.25. In Frankfurt, the DAX index finished up 2.60 points, or 0.10%, to 2,549.65, amid data that German PMI rose to 49.9 in February from 48.3 in January.
In Asia, stocks finished higher with help from strong performances in shares of exporters like Toyota. In Japan, the Nikkei 225 index advanced 127.36 points, or 1.52%, to close at 8,490.40. Hong Kong's benchmark Hang Seng index added 146.11 points, or 1.60%, to close at 9,268.77.