Stocks Fall ahead of Powell Speech
Stocks managed a late-day comeback, but still finished with signficant losses as bad earnings news from telecom equipment maker Alcatel (ALA ) and insurance giant American International Group (AIG ) weighed on investors.
Geopolitical concerns helped set the ugly tone for markets Tuesday. The Dow Jones industrial average tumbled 96.60 points, or 1.21%, to 8,013.20. The broader Standard & Poor's 500-stock index fell 12.12 points, or 1.43%, to 848.20. The tech-laden Nasdaq composite index lost 17.64 points, or 1.35%, to 1,306.15.
"AIG's unexpected loss reserves charge set the tone for the day, sending shares lower from the get-go," says Stephen Carl, principal and head of U.S. equity trading for Williams Capital Group, LP. "In addition, few investors were willing to take positions ahead of Colin Powell's speech to the U.N. on Iraq tomorrow."
The Secretary of State will present evidence to the U.N. Security Council Wednesday that proves Iraq has weapons of mass destruction. Powell is expected to elaborate on allegations that Saddam Hussein has links with the al Qaeda terrorits group. U.K. Prime Minister Tony Blair will join Powell in efforts to build international support for military action against Iraq.
Tuesday's company news was mostly bad. Telecom stocks slid after French equipment maker Alcatel forecast a sharp decline in first quarter sales. On Monday Ericsson (ERICY ) also gave a dismal outlook.
Insurance stocks took a hit after AIG said it will take a $1.8 billion after-tax charge as it sets aside cash to pay higher-than-expected claims by U.S. businesses to cover the cost of sick workers and corporate directors facing lawsuits. Deutsche Bank lowered its rating on the stock to "hold."
On Wednesday, investors will digest earnings from Cisco Systems (CSCO ) The company posted net income in its fiscal second quarter of $991 million, or 14 cents a share, compared with $660 million, or 9 cents a share. Sales, however, were lower amid the technology spending slowdown. Comments on the outlook from the company's conference call will be available by Wednesday morning.
Well-known names expected to report earnings during or before Wednesday's session include: Anheuser-Busch (BUD ), Sprint (FON ), Jones Apparel Group (JNY ) and Whirlpool (WHR ).
U.S. Treasury prices finished with healthy price gains as equities fell and bonds regained their flight to safety bid, says economic research outfit MMS International. Shorter-dated securities outperformed. Traders may be wary about extending gains ahead of tomorrow's refunding announcement.
The Institute for Supply Management will release its non-manufacturing index at 10:00 EST Wednesday. MMS expects the index to edge up to 55.0 in January from the December reading of 54.7. This release has been of interest as a measure of strength in the service sector during the current economic downturn, but MMS expects the data will likely take a backseat to two key events: Secretary of State Powell's brief to the U.N. and the Treasury's plan to make its refunding announcement.
On Tuesday, December factory orders rose 0.4%, in line with estimates. Shipments fell 0.6%, as expected. Factory inventories increased 0.5% after a revised 0.2% November decline. "Manufacturing is improving, but in a 'bump along the bottom' kind of way," notes Trip Jones, senior vice-president of Fulcrum Global Partners, a New York-based independent research and brokerage firm.
Challenger, Gray, & Christmas reported that job cuts announcements jumped 42% in January from December's 92,917. The surge in cuts pushed the six-month total to 746,781, which is above the annual total for 12 of the last 14 years. The report indicated that the economic uncertainties associated with a war with Iraq has left companies is a difficult position to plan for future growth, says MMS.
European stocks finished lower, led by losses in Alcatel, which said sales may drop as much as 30% this quarter. In London, the FTSE index finished off 99.30 points, or 2.69%, to 3,590.10, as U.K. Prime Minister Tony Blair attempts to persuade French President Jacques Chirac to remove his opposition to disarming Iraq by force. Paris' CAC-40 index finished down 94.29 points, or 3.19%, to 2,863.50. In Frankfurt, the DAX index fell 119.01 points, or 4.32%, to 2,632.98.
In Asia, stocks finished slightly lower ahead of Powell's brief Wednesday. Japan's Nikkei 225 index fell 15.89 points, or 0.19%, to 8,484.90. Hong Kong's benchmark Hang Seng lost 6.24 points, or 0.07%, to 9,252.71.