Stocks reversed course Monday, with the Dow index ending positive and the Nasdaq near breakeven, as investors shopped for bargains despite ongoing concerns over anti-terrorism efforts and the beginning of an ugly corporate earnings season.
With help from some positive comments at tech companies, aggressive interest rate easing and the promise of government stimulus, stocks have erased much of the losses incurred when the markets reopened after the terrorist attacks of September 11. However, Wall Street remains under pressure, as it heads into a dismal earnings season -- the worst in a decade -- and the prospect of a protracted war contains stock market advances.
"I think we were soft this morning, but it wasn't a huge day off. I think overall there's money on the sidelines that wants to go to work," says Jay Suskind, director of equity trading at Ryan Beck & Co. "Geopolitically it's been kind of quiet today -- except for the anthrax scare at the the Senate."
A letter opened in the office of Senate Majority Leader Tom Daschle had anthrax in it. The envelope was tested shortly after being received, and the staffers who have been exposed are being treated, according to news reports.
As the slowing economy hurts profits at many companies, Wall Street will cast a critical eye on some 180 third-quarter results of S&P 500 companies this week. Suskind says that so far earnings reports have not delivered any major negative surprises on the downside. "But it's only Monday," he adds.
Chip concern Novellus Systems (NVLS ) could give tech stocks direction Tuesday. After Monday's close, the company reported third-quarter profits, before one-time items, fell to $35.2 million, or $0.24 cents a share, from $43.3 million, or $0.29, a year ago. Its earnings were in line with analysts' expectations.
Among companies reporting earnings Tuesday: chipmaker Intel (INTC ), healthcare company Johnson & Johnson (JNJ ), food company Kraft Foods Inc. (KFT ) and energy concern Enron (ENE ).
"I'm interested in comments on how business was before September 11 and how orders look going forward. And I want to see as few excuses as possible," says Henry Asher, president of Northstar Group. Asher expects that low returns on "safe-harbor" investments should eventually spur investors back into stocks.
This week investors will also look to Federal Reserve Chairman Alan Greenspan's appearance Wednesday before the Joint Economic Committee of the House and Senate for direction.
Brokerage downgrades on several major companies fueled losses earlier in the session. JP Morgan cut its rating on five communications chip makers, noting the stocks are overvalued. Applied MicroCircuits Corp. (AMCC ), Xilinx Inc.(XLNX ), Altera Corp. (ALTR ) and Vitesse Semiconductor Corp. (VTSS ) were all lower after the downgrade, but came off their lows by Monday afternoon.
S&P lowered its credit ratings on General Motors Corp. and Ford Motor Co. (F ), citing rising competition for the auto giants and a deepening industry slowdown that may hurt profits at the companies.
Among stocks in the news Monday, Bethlehem Steel Corp. (BS ), the No. 3 U.S. steel producer and a former Dow component, filed for Chapter 11 bankruptcy amid one of the worst steel markets in years.
Also, Bank of America Corp. (BAC ) said its quarterly net income dropped 54% as it put aside reserves to protect against bad loans resulting from the slowing economy. The company, as it had previously announced, took a $1.25 billion charge to exit the subprime real estate and auto lease businesses.
The Dow Jones industrial average added 3.46 points, or 0.04%, to 9,347.62. The tech-heavy Nasdaq Composite Index dropped 7.10 points, or 0.42%, to 1,696.30. The broader Standard & Poor's 500 Index ended off 2.47 points, or 0.23%, to 1,089.18.
U.S. Treasuries finished higher on weakness in the equities markets amid continued demand for quality and liquidity. Longer-term bonds inched higher, but gains were not compelling.
In economic news, the Commerce Dept. said that August business inventories -- as expected -- fell 0.1%, after a revised 0.5% decline in July. Weakness was seen in manufacturing inventories, which fell 0.7% while retail inventories rose 0.6%. Sales were up 0.1% after a 0.4% increase. The data is not expected to have much market impact.
Later in the week, traders will look to updates on industrial production, housing starts, the Philadelphia Fed index and consumer price index.
European markets ended lower amid continued uncertainty over the war on terrorism and worries over economic slowdown. Financial companies led declines. In London, the Financial Times-Stock Exchange 100 index finished down 78.20 points, or 1.52%, to 5,067.30. In France, the CAC 40 ended off 122.97 points, or 2.84%, to 4,213.91. In Germany, the DAX Index fell 76.65 points, or 1.66%, to 4,548.48.
In Asia, the markets ended down. Profit taking, corporate earnings warnings, and retaliation jitters over the war in Afghanistan all took their toll. Japan's Nikkei shed 179.81 points, or 1.69%, to 10,452.54, on the heels of a strong 4.2% over last week. In Hong Kong, the market lost 143.54 points, or 1.40%, to 10,130.59.
By Amy Tsao in New York