NEW YORK (CNN/Money) -
Selling in both tech and blue-chip issues punished U.S. stock markets Monday, amid a downgrade of Dow component IBM and a lackluster reaction to the proposed replacements for President Bush's economic team.
The Nasdaq composite (down 55.30 to 1367.14, Charts) lost just under 4 percent, while the Dow Jones industrial average (down 172.36 to 8473.41, Charts) and Standard & Poor's 500 index (down 20.23 to 892.00, Charts) both declined around two percent.
The Dow had closed higher for eight weeks, while the Nasdaq and S&P 500 had closed higher for three weeks, before all three indexes closed lower last week. The selloff Monday was in part a continuation of that selling, analysts said.
"I think this is a normal pullback from a very big move. IBM's downgrade and UAL we can use as an excuse for today's pullback," Ted Weisberg, a trader at Seaport Securities, told CNNfn's Street Sweep. "I think any good news could get us going again."
Tuesday brings news from the Federal Reserve. Last month, Fed policy makers surprised market participants by cutting interest rates by a half-percentage point, acknowledging the weakness in the economy. But the policy makers are expected to keep their federal funds rate target at 1.25 percent, a 40-year low, when they convene for their rate-setting meeting Tuesday.
No meaningful corporate profit reports are expected Tuesday.
A variety of tech stocks pulled the Nasdaq composite lower Monday, with heavily-weighted issues Intel (INTC: down $1.03 to $17.68, Research, Estimates), Dell (DELL: down $1.11 to $27.54, Research, Estimates) and Cisco Systems (CSCO: down $0.64 to $13.54, Research, Estimates) all declining more than 3 percent. Among the Dow industrials, 26 out of 30 issues closed lower, with IBM (IBM: down $2.73 to $79.59, Research, Estimates) leading the retreat.
"There aren't really any standout negative catalysts today," said Brian Finnerty, managing director at Melhado Flynn & Associates. "The market's just kind of drifting lower today on pretty light volume. We're also probably still a little oversold from the recent run."
IBM hit by downgrade
IBM was the Dow's biggest decliner. Shares of the stock fell after Banc of America Securities downgraded the company to a "market perform" from a "buy," saying the stock price had run up too much, too quickly. The firm also cut its 2003 revenue estimates on IBM, saying it doesn't think IBM's revenue will rise in the near-term based on sluggish information technology spending.
Shares of Wal-Mart Stores (WMT: down $1.19 to $51.85, Research, Estimates) declined after the company issued its weekly update. The No. 1 retailer said sales last week at stores open a year or more were at the low end of its estimates, although it still expects December sales to fall within its previous guidance for growth of 3 to 5 percent from the year earlier period.
Shares of Dow financial stocks J.P. Morgan Chase (JPM: down $1.17 to $23.26, Research, Estimates) and Citigroup (C: down $1.41 to $36.15, Research, Estimates) both declined on new published reports of congressional probes into whether they helped bankrupt energy trader Enron hide debt. In addition, the stocks fell partly on exposure to United Airlines -- the banks are among a group of lenders offering $1.5 billion in debtor-in-possession financing to the company.
Shares of troubled UAL (UAL: unchanged at $0.93, Research, Estimates) managed to close unchanged after sliding through most of the morning, after the company's United Airlines unit filed for bankruptcy Monday, finally giving in to huge losses and heavy outstanding debt. The move had been expected after a federal board rejected the carrier's request for a loan guarantee last week. The company plans to continue to operate while it restructures.
Bush nominee considered
Also impacting investor sentiment was news that President Bush has nominated John Snow, the CEO of transportation company CSX Corp. (CSX: down $0.42 to $28.08, Research, Estimates) and a former member of the Nixon and Ford administrations, to replace Paul O'Neill as Treasury Secretary, after O'Neill's resignation Friday.
Much speculation and concern had arisen over who would replace O'Neill, as his handling of the accounting scandals and economic recession of the last year has been heavily criticized. However, stocks seemed to show little reaction to the announcement.
"I guess people aren't exactly jumping up and down over the new guy, Snow, because they don't know much about him," Melhado, Flynn's Finnerty added. "However, I don't think the selloff is a negative reaction to that, but I think it's a sense of more of the same, meaning another older guy from 20 years ago."
Treasury prices rose, sending the 10-year note yield down to 4.04 percent. The dollar was little changed versus the yen and the euro.
Light crude oil futures rose 27 cents to $27.20 a barrel in London. Gold declined modestly.
Market breadth was negative on light volume. On the New York Stock Exchange, decliners beat advancers by more than 12 to 5 as 1.22 billion shares traded. On the Nasdaq, losers beat winners by more than 5 to 2 as 1.45 billion shares changed hands.
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