Where did the rally go?
Recent runup evaporates as concerns about the weak economy punish stocks.
NEW YORK (CNNmoney) - U.S. equity markets posted steep declines for the second day in a row Tuesday, as growing concerns about the health of the economy - exacerbated by weak consumer sentiment data - further eroded the recent rally.|
A giveback was hardly unexpected, following a month of national security issues, anthrax scares, corporate layoffs and tumbling profits. But the extent of this week's decline has so far exceeded expectations.
The Nasdaq composite index fell 32.11 Tuesday to 1,667.41 and has lost about six percent in the last three sessions. The Dow Jones industrial average lost 147.52 to 9,121.98. The S&P 500 gave up 18.51 to 1,059.79.
The major indexes had previously looked to be making clear progress from their lows of September 21, the end of the first week of trade following a four-day halt of trade post-September 11.
Many market analysts asserted that negative third-quarter corporate results and weak economic numbers were losing their ability to shock investors, arguing that the poor results were already built into expectations.
Equity indexes have closed up four out of the last five weeks. As of last Friday, the Nasdaq had risen 25 percent and the Dow industrials had added almost 16 percent from the September 21 lows.
But after two days of heavy selling, the Nasdaq is now currently up just 17 percent off the September 21 lows and slightly below its pre-attack level, while the Dow industrials is up just 10.8 percent.
Some analysts cautioned that with comparatively light volume and so-called 'profit-taking' a fairly typical response to a period of sustained gains, the slide may not be as negative as initially perceived.
"A lot of people expected this selloff. After the recent run-up and with the economy not making the rebound as quickly as hoped, you're seeing some selling," Patrick Boyle, head financial trader, Credit Suisse First Boston, told CNNfn's Street Sweep.
The Conference Board's Consumer Confidence Index fell to a 7-1/2 year low of 85.5 in October from a revised 97 in September. Economists surveyed by Briefing.com were expecting a 95.9 reading.
Treasury prices soared on the confidence numbers, with the yield on the 10-year note falling to 4.42 percent from 4.48 percent late Monday. The dollar was modestly higher versus the euro and the yen.
"It's not a pretty picture. This (consumer confidence) tells us just how bad things really are," said Mike Farrell, head of asset allocation at David L. Babson. "Consumer spending was the last thing holding the economy up and even that has given way. This is the Fed's worse nightmare."
The Federal Reserve has cut interest rates nine times this year, twice since Sept. 11, in the hopes of reviving the economy and investor confidence.
In Asia, major stock indexes closed lower Tuesday. Corporate warnings and job cuts sent European stocks downward by the close.
Anthrax, terror threats worsen jitters
"People were nervous already, but the consumer confidence, the anthrax news and John Ashcroft's statement exacerbated it," Karen Hackett, NYSE member, Susquehanna Brokerage, told CNNfn's Street Sweep.
Late Monday, Attorney General John Ashcroft warned that there is a credible threat of new terrorist action in the United States in the next few days, and he urged law agencies and the public to be on high alert. It's the second time the government has informed the public of a "credible threat."
In a news conference Tuesday, Homeland Security Director Tom Ridge said there have been 16 confirmed cases of anthrax, including the latest one involving a hospital worker in New York.
Secretary of Defense Donald Rumsfield acknowledged that there are a modest number of U.S. ground troops in Afghanistan.
Verizon, Juniper trade lower
Although a number of analysts and corporations released negative forward-looking statements, weakness in markets was broad-based.
Market breadth was decidedly negative. On the Nasdaq, losers beat winners by a nearly 2-to-1 margin as 1.78 billion shares traded. On the New York Stock Exchange, decliners topped advancers by a more than 2-to-1 margin as 1.29 billion shares changed hands.
Merrill Lynch cut its rating and revenue outlook on Juniper Networks (JNPR: down $1.01 to $22.99, Research, Estimates), the No. 2 networking issue after Cisco Systems (CSCO: up $0.15 to $16.57, Research, Estimates). The firm also trimmed fourth-quarter earnings per share estimates and fiscal 2003 revenue estimates on Dell Computer (DELL: down $0.85 to $23.24, Research, Estimates).
Qualcomm (QCOM: down $3.61 to $48.69, Research, Estimates) fell after Credit Suisse First Boston cut 2002 estimates on the wireless technology company.
Shares of Macrovision (MVSN: down $9.75 to $23.72, Research, Estimates) fell after the maker of copyright protection software saw higher third-quarter profits that nonetheless missed estimates, but said it saw no growth in the fourth quarter.
Energy trader Enron (ENE: down $2.65 to $11.16, Research, Estimates) continued to slide amid persistent concerns about credit and financial disclosure issues.
Software maker Openwave Systems (OPWV: down $1.18 to $7.81, Research, Estimates) lost 3 cents a share in its first quarter, meeting estimates, but warned about its second quarter and said it was cutting 13 percent of its work force.
Verizon Communications (VZ: down $0.89 to $49.30, Research, Estimates), the nation's second-largest telecommunications company, warned about its results for the full year after reporting higher third-quarter earnings.
U.S. Airways Group (U: down $0.02 to $4.65, Research, Estimates) reported a sharply wider third-quarter loss, but said it has enough cash and revenue coming in to keep operating.
No. 2 U.S. drugstore chain CVS (CVS: down $7.27 to $24.35, Research, Estimates) warned about fourth-quarter results and said it is closing about 200 stores in a restructuring move.
Goldman Sachs cut Philip Morris (MO: down $1.98 to $47.70, Research, Estimates) from its purchase list and lowered the tobacco maker's estimates and ratings.
No. 2 U.S. automaker Ford (F: down $0.16 to $16.05, Research, Estimates) announced President and CEO Jacques Nasser has been replaced by William Clay Ford Jr., the great-grandson of the automaker's founder, among other high-level changes.
On a positive note, Dow component Procter & Gamble (PG: up $2.90 to $74.20, Research, Estimates) posted higher profit for the first fiscal quarter, topping estimates, and said it is on target to meet its full-year profit target.
Coca-Cola (KO: down $0.45 to $48.16, Research, Estimates), the soft drink maker, agreed to buy juice maker Odwalla (ODWA: up $3.30 to $15.13, Research, Estimates) for $181 million, or $15.25 per Odwalla share.
Anthem (ATH: up $4.90 to $40.90, Research, Estimates), the week's biggest initial public offering, gained almost 13 percent in its first day of trading. The company is one of the nation's largest health insurers.
GDP is expected to show more weakness
The consumer confidence report is just one of several key economic indicators due this week.
On Wednesday, the Commerce Department's report on third-quarter gross domestic product - the broadest measure of the nation's economy - is expected to show a decline of 1 percent from a revised gain of 0.3 percent in the second quarter.
Latin America added some anxiety as long-held concerns that Argentina might default on its $132 billion debt were intensified. The Argentine economy is entering its fourth year of recession, raising default concerns.