Stocks Pounded Again By Accounting Worries
U.S. stocks slid on Monday with the three major indexes off more than 2% on mounting fears that more companies could be hiding Enron-like (ENRNQ.PK ) accounting problems that pushed the once high-flying energy trader into bankruptcy. A minor economic report suggested the U.S. economy is improving but still remains in a recession. Whipping up investor anxiety were two developments involving conglomerate Tyco International (TYC ), whose accounting practices have been under scrutiny recently. A Wall Street Journal report said Tyco spent about $8 billion on more than 700 acquisitions that were never publicly disclosed. The company confirmed to S&P MarketScope that it sent a letter to the Journal calling the article "false and malicious"; Tyco said the acquisitions were disclosed, according to MarketScope. Also, rating agency Standard & Poor's cut its rating on Tyco's debt. On the Enron scandal front, Kenneth Lay, the former chairman of the bankrupt energy trader, canceled his planned testimony before Congress. His attorney said his client was pulling out because of the growing "prosecutorial" tone lawmakers had taken but Congress was already mulling issuing Lay a supoena to force him to appear. Enron was not the only energy trader having trouble. Williams Cos. (WMB ) was hit with a bout of selling after Standard & Poor's said it may cut credit ratings on the company.
Accounting concerns dogged other companies as well. Enterasys (ETS ) shares were sharply lower after the networking equipment company delayed the spin-off of its Aprisma unit and the release of its fourth-quarter results. Enterasys said the SEC is investigating the company and its affiliates.
Meanwhile, Elan Corp. (ELN ) shares plummeted further after the medical products company posted $0.56 vs. $0.45 fourth-quarter earnings per share from operations on a 15% revenue rise. Elan lowered its 2002 EPS guidance to $1.55-$1.65. The shares tumbled last week on concerns about how the company books its revenues.
But there was some positive news for stocks. Hewlett-Packard (HWP ), the computer and printer maker, said that its first quarter earnings per share are expected to be substantially above their earlier estimate of $0.16. H-P cited an uptick in consumer demand for computers, imaging, and printing products.
The company's upbeat comments about consumer technology spending are in sharp contrast to a gloomier assessment made over the weekend by Microsoft (MSFT ) founder Bill Gates, who said that he doesn't see a quick pickup in economic activity -- and that overcapacity remains a problem.
Shares of Lockheed Martin Corp. (LMT ) and other defense companies rose after President Bush proposed a $48 billion increase in the defense budget as the nation continues its efforts to battle terrorism.
The Dow Jones industrial average slid 220.17 points, or 2.22% to 9,687.09. The Nasdaq Composite index eased 55.74 points, or 2.92%, to 1,855.50. The broader Standard & Poor's 500 index was off by 27.78 points, or 2.48%, to 1,094.42.
Monday's highest-profile earnings release will come from communications company Sprint (PCS ). Its rival WorldCom (MCIT ) is expected to report results on Thursday.
Treasuries traded higher on the downdraft in equities.
The Chicago Fed's National Activity index improved to -0.77% in December from -1.29 in November (-1.93 in September) but the negative number indicates that the economy is still struggling. The index is made up of 85 economic indicators.
Standard & Poor's economic research unit MMS says the improvement in the December data is not a surprise and that the figures won't impact the markets. That improved the 3-month average to -1.05 from -1.44. The improvement in the December data is not a surprise and the figures won't impact the markets, notes Standard & Poor's MMS.
In London, the Financial Times-Stock Exchange 100 index was off 22.40 points, or 0.43%, to 5,167.30, following Bill Gates' downbeat assessment of an economic recovery, the Tokyo stock market slide and potential major bank trouble in Argentina. But some traders were encouraged by the Daily Telegraph report business confidence improved.
In France, the Paris CAC 40 was off 58.02 points, or 1.30% to 4,397.54. And Germany's DAX index lost 112.58 points, or 2.21% to 4,984.48 on the lower open in the U.S. stock market. Investors were ignorning reports that European business confidence improved in January to its highest level since September 11.
Asian markets ended mixed. Japan's Nikkei 225 index lost 159.50 points, or 1.63%, to 9,651.93, its lowest close since September 2001. Banks were hit the hardest by sagging faith in the Koizumi government.
Hong Kong's Hang Seng index fell 30.07 points, or 0.28%, to 10,721.32.
President Bush is offering Congress a $2.12 trillion budget that provides hefty increases for his three top priorities - the war on terrorism, homeland security and economic recovery - while squeezing savings out of scores of underperforming government programs: wires.
Amid evidence of possible illegal activity at Enron, former chairman Kenneth Lay joined a growing list of executives who are backing away from testifying to Congress about the energy company's complicated financial deals and spectacular collapse: wires.