Markets & Stocks
War, oil sink stocks
Hans Blix says Iraq could do more to cooperate with inspectors; HP sinks 15%, drags on techs.
February 26, 2003: 7:58 PM EST
By Meghan Collins, CNN/Money Staff Writer

NEW YORK (CNN/Money) - Stocks sank for the second time in three sessions Wednesday, hurt by worries about Iraq, weaker-than-expected sales from Hewlett-Packard and soaring oil prices.

It remains to be seen if the market can shake out of its recent slump on Thursday, with investors awaiting reports on weekly jobless claims, durable goods orders and home sales, as well as some retail earnings reports.

The Nasdaq composite (down 25.30 to 1303.68, Charts) sank 1.9 percent, while the Dow Jones industrial average (down 102.52 to 7806.98, Charts) and the S&P 500 index (down 11.02 to 827.55, Charts) each shed about 1.3 percent. The markets managed small gains Tuesday, despite concerns related to Iraq, after falling sharply Monday.

"The market continues to attempt to find a footing," said Douglas Altabef, managing director at Matrix Asset Advisors. "Essentially, we are still somewhat on hold as a result of events unfolding between the United States, Iraq and the United Nations. There just doesn't seem to be a meaningful signal that Iraq has decided to disarm."

On the Iraq front, another statement from U.N. Chief Weapons Inspector Hans Blix on the level of commitment from Baghdad, and news that Turkey was pulling its oil tank trucks out of Iraq, shook investors and led them to fear that war was creeping closer. Worries that the United States could be on the edge of an attack on Baghdad has slowly chipped away at the markets in recent weeks.

Worries about a possible war with Iraq, and a drop in inventories of oil products, helped drive oil to its highest level since 1991 during the day. Some investors who fled stocks sought the perceived safety of Treasury bonds and gold.

Meanwhile, an earnings report from tech bellwether Hewlett-Packard indicating that sales for the current quarter would likely fall short of Wall Street estimates also plagued the market.

Investors will have more retail earnings along with some economic data to consider Thursday.

Wall Street expects Gap (GPS: down $0.01 to $14.76, Research, Estimates) to swing into a profit, reporting earnings of 27 cents a share, compared with a loss of 4 cents during the same period last year, according to a consensus of analysts surveyed by Multex.

Clothing retailer Limited (LTD: up $0.01 to $11.12, Research, Estimates) was also set to report, with analysts expecting a drop in profits to 64 cents a share from 67 cents in the year-earlier period.

Before the opening bell, the Labor Department plans to release its new jobless claims data for the week ended Feb. 22. Claims are expected to drop to 390,000 from 402,000 the preceding week, according to economists.

At the same time, the government is set to report on durable goods orders for January. Economists, on average, forecast the orders rose 1 percent, after a decline of 0.2 percent in December.

After trading begins, investors will get a reading on new home sales. Wall Street predicts the number of new homes sold in January fell to an annual rate of 1.05 million from 1.08 million in December.

More on the war front

Developments related to tensions with Iraq continued to sour sentiment.

Hans Blix said his inspection teams would need several months to work inside Iraq, even if Baghdad fully cooperated, according to a report in German magazine Die Zeit, to appear Thursday. The piece also quoted Blix as saying Iraq could do more" to cooperate with inspectors, "and we would register that," but that he thinks the country has stepped up its efforts lately.

Iraq has been ordered by Blix to begin destroying an estimated 100 to 120 Al Samoud 2 missiles by Saturday.

"Every headline minute-to-minute dictates what the market is going to do. I think there are going to be more torturous, slow days," said Jack Baker, head of equities trading at Putnam Lovell.

Traders' fragile hopes that a peaceful solution to the issue might be found were dashed when television network CBS, leaking tidbits of a much anticipated interview it had with Saddam Hussein, let it be known Hussein has no intention of resigning or seeking exile.

In his own words: "We will die here. We will die in this country, and we will maintain our honor." The interview with the Iraqi leader was scheduled to air Wednesday night as part of "60 Minutes II."

In the meantime, Washington was already making plans on what to do in Iraq -- should a war be fought and won and Hussein deposed. And U.S. Persian Gulf commander Gen. Tommy Franks arrived in Qatar to check on preparations for a possible military offensive against Iraq. (For the latest news, go to

With all the tension surrounding Iraq, rising energy prices also continue to pressure stocks, traders said. Oil prices traded around their two-year high, with light crude futures for April delivery gaining $1.64 to $37.70 a barrel.

"The real issue is that energy prices keep rising -- it's like an invisible tax on the market and the consumer," Matrix Asset Advisors' Altabef said.

Tech news hits hard

Bleak news from two tech stalwarts also ravaged stocks.

Hewlett Packard (HPQ: down $2.81 to $15.37, Research, Estimates), the world's leading maker of personal computers and a Dow component, late Tuesday posted a fiscal first-quarter profit that beat analysts' estimates and showed an improvement from a year earlier.

But sales for the period were well below expectations. To top that, HP warned that sales in the current quarter would be weaker than analysts have been predicting. The stock, which was the second most actively traded on the New York Stock Exchange, fell more than 15 percent.

Another tech stronghold and HP's erstwhile competitor, Dell (DELL: down $0.73 to $25.78, Research, Estimates), suffered as well, losing almost 3 percent of its value after company founder and CEO Michael Dell told a Goldman Sachs technology symposium he doesn't expect to see a pickup in business spending even after the Iraq crisis is resolved.

The defense sector also took a hit, with shares of Dow component Boeing (BA: down $0.35 to $27.84, Research, Estimates), Northrop Grumman (NOC: down $0.79 to $87.96, Research, Estimates), and General Dynamics (GD: down $0.80 to $60.35, Research, Estimates) all sinking around 1 percent to new 52-week lows.

In light of the latest saber rattling and weak corporate news, more stocks continued to fall than rise. On the NYSE and the Nasdaq, losers beat winners by a margin of about 5 to 3. Close to 1.3 billion shares changed hands on the NYSE, and 1.2 billion shares traded on the Nasdaq.

U.S. Treasury bonds rose slightly, with the 10-year note gaining 13/32 of a point in price for a yield of 3.77 percent. The dollar weakened slightly against the euro and also slipped versus the yen.

Gold for April delivery climbed $1.70 to $354.10 an ounce.

European markets closed mostly lower Wednesday. Asian-Pacific stocks finished mixed, with Tokyo's Nikkei index ending slightly lower.  Top of page

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