Stocks End at Session Lows

Nervousness about the upcoming earnings season prompted selling. Investors need to hear some reassuring words on profits from big companies

Stocks finished with sharp losses Monday as investors treaded carefully on worries over the third-quarter earnings preannouncement season and stock valuations.

The Dow Jones industrial average declined 146.00 points, or 1.40%, to 10,281.67. The Nasdaq composite index fell 38.90 points, or 2.10%, to 1,812.49. The broader Standard & Poor's 500 Index lost 17.00 points, or 1.48%, to 1,131.70.

"With the holidays coming up, earnings [warning season] in full course and the end of the quarter coming, we had a lot of cautious traders continue to take money off the table," says Peter Cardillo, chief strategist at Global Partners Securities Inc. Cardillo notes that the short-term technical outlook for the stock market does not look good.

Investors, by and large, are nagged by a sense that stock valuations are out of whack with expectations for corporate earnings and the anticipated economic recovery. As a result, stocks have been moving lower lately.

What will reverse the slide? Economic news will have to continue to do well, Cardillo says. "But the main catalyst now will be guidance from Corporate America. They have to say that they see a turnaround in earnings in the third quarter." Cardillo expects that companies in general will be more positive in their guidance than negative.

Better-than-expected economic data released Monday failed to spur investors. Existing home sales in February fell 2.87% to a 5.88 million annualized rate, which was much better than the 9% decline Standard & Poor's economic research unit predicted. In January, existing home sales surged to 16.2% in January.

"The housing data were quite good. But the market has been susceptible to profit taking here," says Charles White, president of money management firm Avatar Associates. But worry over what the Federal Reserve might do now that the vast majority of economic measures are signaling a recovery has investors moving cautiously. "I think valuations certainly become more and more problematic if we start to see a move up in interest rates. That's got to be troubling markets here."

Tech heavyweights Microsoft (MSFT ), Intel (INTC ) and Hewlett-Packard (HWP ) led losses on the Dow Jones Industrials average and the broader tech-heavy Nasdaq Composite. Investors are most worried about tech stock valuations and whether they have risen too high.

Shares in Philip Morris (MO ), another member of the Dow, dipped after a jury in Oregon ordered the cigarette maker to pay $150 million to the family of a woman who died of lung cancer.

In other company news, PepsiCo (PEP ) ousted beverage rival Coca-Cola Co. (KO ) from a long-standing deal with UAL Corp.'s United Airlines. Separately, a Credit Suisse First Boston analyst raised his rating on Coca-Cola to 'buy' from 'hold', citing improving diversification at the No. 1 soda and drink maker.

Meanwhile, the largest U.S. drugstore chain Walgreen Co. (WAG ) reported a 10% rise in quarterly earnings with help from competitive pricing and better store locations.

Treasury Market

U.S. Treasuries finished mostly lower in price in the first session of a holiday-shortened trading week. The thirty-year note edged higher after trading lower for most of the session. Bearish sentiment from last week carried over into Monday, S&P says. Meanwhile, fiscal year-end positioning by Japanese accounts added to weakness.

Following Monday's update on existing home sales, investors will have plenty of other reports to chew on this week. Durable good orders and consumer confidence reports are due Tuesday. On Wednesday, new home sales will be reported. Thursday is highlighted by the Chicago purchasing managers' index along with initial jobless claims, the University of Michigan's consumer sentiment release, and fourth quarter final gross domestic product. Friday rounds out the week with the latest update on personal income.

Also, Fed Chairman Alan Greenspan will speak Tuesday on corporate governance before New York University's Stern School of Business after the market close (5:00 pm ET).

World Markets

European stocks followed U.S. stock performance Monday, ending lower. In London, the Financial Times-Stock Exchange 100 index finished down 46.90 points, or 0.89%, to 5,203.60. In France, the CAC 40 lost 13.21 points, or 0.29%, to 4,588.36. In Germany, the DAX Index fell 48.75 points, or 0.91%, to 5,317.38.

In Asia, the markets ended lower. In Japan stocks slipped ground for a third straight session in thin fiscal year-end trading. Technology issues led losses on the benchmark Nikkei average, which fell 83.99 points, or 0.74%, to 11,261.09. Hong Kong's Hang Seng index dipped 26.43 points, or 0.24%, to 10,836.64.

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