Stocks Decline Sharply
Stocks reeled on Thursday after computer services company Electronic Data Systems (EDS ) rattled Wall Street with a profit warning, raising concerns about upcoming results from other companies. Mostly disappointing economic news and attempts by the Bush Administration to drum up support for a war against Iraq exacerbated the bearish sentiment.
EDS' news that its third-quarter profits would be sharply lower than initially forecast sent its shares tumbling nearly 53% -- and had a chilling effect on other information technology service providers. Shares of hardware and services giant IBM (IBM ) were lower after analysts from several different brokerage houses cut their profit estimates or price targets for Big Blue. Shares of IBM, a Dow component, lost 6.8% on the session.
The Dow Jones industrial average lost 230.06 points, or 2.82%, to 7,942.39. The blue-chip market gauge closed below the 8,000 mark for the first time since July 23. The broader Standard & Poor's 500-stock index was down 26.14 points, or 3.01%, to 843.32. Meanwhile, the Nasdaq composite index gave up 35.69 points, or 2.85%, to 1,216.44.
Friday will be fairly light on the earnings docket with cruise line company Carnival (CCL ) among the few companies scheduled to report results.
On Thursday, the bad profit news wasn't limited to the technology sector. Investment bank Morgan Stanley (MWD ) posted lower quarterly profit because it took in fewer merger and underwriting fees amid depressed stock markets. The shares dropped nearly 11%.
Coca-Cola (KO ) was falling after UBS Warburg lowered the soft drink giant's investment rating to "buy" from "strong buy," saying demand could slow in Germany, Japan and Latin America. Coca-Cola shares fell by 3.3%.
Financial services behemoth Citigroup (C ) agreed to pay $240 million to settle charges that its consumer-finance unit was deceiving borrowers with a history of unpaid debts by selling them insurance without their knowledge. Citigroup shares gave up 5.0%.
But not all corporate news was bad. Air-express company FedEx (FDX ) reported higher quarterly profits thanks to cost cutting and growth at its ground deliveries operations. FedEx shares gained 12%.
On the economic data front, initial jobless claims eased by a less than expected 9,000 to 424,000 for the week ending September 14, from an upwardly revised 433,000 the week prior, economic research outfit MMS International said. Economists had been expecting a greater decline to 420,000. Although some temporary effects from Labor Day and a big bankruptcy were expected to be unwound, this data is somewhat disappointing.
Also disappointing were U.S. housing starts, which tumbled unexpectedly by 2.2% in August to a 1.609 million annual pace in August after a small revision in July to a 1.645 million rate (from 1.649 million previously). MMS International had forecast a rise to a 1.66 million annualized rate.
But a gauge of manufacturing acitivity in the Northeast improved in line with expectations. The U.S. Philly Fed index rebounded to 2.3 in September after crashing into negative territory to -3.1 in August, according to MMS International. Most of the components of the index recovered, including new orders, which rose to 5.6 from -2.7, and employment, which increased to -4.9 from -13.4. Prices paid slipped to 19.6 from 23.9.
Treasuries finished higher in price as investors sought the relative safety of government bonds amid stock losses and economic and geopolitical uncertainty. The yield on the 10-year note fell to 3.78% at the close, near 41-year lows.
European stocks ended lower as U.S. stocks declined sharply on some negative corporate and economic news.
London's Financial Times Stock exchange index fell 51.90 points, or 1.34%, to 3,813.50. UK factory orders fell at the fastest rate in 6 months raising concerns about economic recovery.
Germany's DAX index lost 117.45 points, or 3.76%, to 3,007.47. The weakness was prompted by concerns that the economic recovery is faltering. The DAX has fallen 15% in the last six trading days.
And France's CAC index gave up 73.80 points, or 2.46%, to 2,927.18.
Asian markets ended mixed. Tokyo's benchmark Nikkei 225 index gained 197.56 points, or 2.09%, to 9,669.62 led by bank shares after the Bank of Japan announced that the central bank is considering buying stocks held by banks, aiming at limiting the impact of falling stock prices on the financial system.
In Hong Kong, the Hang Seng Index lost 46.28 points, or 0.49%, to 9,669.62.
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