Steve Quayle News Alerts

Oct. 7, 2002

DOW   7,422.84  -105.56   -1.40%
NASDAQ   1,119.40  -20.50   -1.80%
S&P 500   785.28   -15.30   -1.91%

A six-week selloff continued on Wall Street, with the West Coast port lockdowns and yet another profit warning giving investors no reason to buy.

INVESTORS ALSO WERE sitting tight ahead of a speech from President Bush on the Iraq situation.

As usual, good news was scarce, though stocks showed some life early in the session after Mr. Bush said he would form a board of inquiry to consider the economic impact of the West Coast port lockout, a potential first step toward ordering dockworkers back to their jobs, two administration officials said.

By one estimate, the lockout, which has entered a second week, is costing the American economy $2 billion a day, putting a crimp in an already wobbly economic turnaround.

But gains were fleeting, and by afternoon all major indexes had retreated into the red. The Dow Jones Industrial Average fell 105 points, or 1.4%, while the Nasdaq Composite Index declined 20 points, or 1.76%.

Some said damage has already been done and the economy will remain weak in spite of whatever action the president takes.

“Mr. Bush getting involved is what the market wanted to hear, though it doesn’t really solve anything because if this continues, it means further economic weakness, and if it’s settled, we’re still in a soft environment,” said Peter Cardillo, chief strategist and director of research at Global Partners Securities.

The wobbly economic concern has been Wall Street’s main preoccupation this year, and the outcome of the dock lockout could tip the balance. The work stoppage poses a threat to retail sales during the crucial holiday season in a stretch during which consumer spending, not business spending, has kept the economy limping along.

Retail stocks were suffering on Tuesday, hurt by the lockout and also by an earnings warning from Sears, Roebuck, which said it would miss third-quarter estimates. Its shares tumbled 12%. Competitors like Dow component Wal-Mart Stores and J.C. Penney felt the pain as well, falling 2.5% and 5% respectively.

Investors have been on eggshells ahead of the slew of third-quarter earnings reports due out in weeks to come after a rough and tumble preannouncement season.

Overseas Markets, Bonds
Price Change Percent Change
FTSE (London) 3,780.9   +12.50   +0.33%
DAX (Frankfurt) 2,667.4   -47.23   -1.74%
Nikkei 225 8,688.0   -339.50   -3.76%
Hang Seng 8,931.4   -119.90   -1.32%
30-year bond 110.34   +0.13   +0.11%
10-year note 106.28   +0.50   +0.47%

Source: CNBC on MSN Money and S&P Comstock

Last week, a number of high-profile earnings warnings sent stocks down, including several Dow industrials components. On Friday, the Dow industrials tumbled 2.5%, while the S&P 500-stock index lost 2.2%. The tech-heavy Nasdaq Composite Index also fell 2.2%.

The just-completed third quarter was the worst on Wall Street in 15 years, since the Black Monday stock-market crash of October 1987. The Standard & Poor’s 500 appears headed for its third straight losing year, something that hasn’t happened since the Great Depression.

Also on Monday, investors were anticipating a speech by the president scheduled for the evening in Cincinnati, coming as Congress prepares to vote on resolutions authorizing force against Iraq. A vote in the Republican-controlled House is expected Wednesday or Thursday; a vote in the Democratic-led Senate, where Mr. Bush has encountered more resistance, should come by next week.

A year after he ordered the first military strikes in Afghanistan, the president is offering what aides call his most comprehensive case yet on the threat posed by Iraq, and why a U.S.-led war on Saddam Hussein’s regime may be necessary.

Mr. Cardillo said investors were looking forward to the speech to settle some of the uncertainty that’s hung over the market.

“Having a united front would have a positive psychological effect for the market,” he said. “That might give stocks a push.”

Still, for selling will have to intensify and investors will have to work through some worries about a soft economy, disappointing earnings and the outcome in Iraq and at the West Coast docks, he said.

“We’ve got to get to the point where everyone throws in the towel. I think the negative psychology has to increase a bit more,” he said. Seasonal factors later this month may provide some relief, he said, as most of the earnings reports will have been released by that point.

As for earnings, a few come later in the week, though the brunt come closer to the end of the month. On Tuesday, PepsiCo is set to report before the market opens. Wednesday brings a report from Abbott Laboratories and Thursday brings a report from Dow Jones. The week ends with an earnings report from blue-chip General Electric.

Among blue-chip names moving Monday, Philip Morris swam upstream as the Dow industrial average’s top gainer, climbing 5.4% despite being ordered to pay $28 billion in punitive damages to a smoker with lung cancer — the largest payout ever in the U.S. to a single person.

Morgan Stanley said the damages against the company, at 35,000 times compensatory damages, are “unquestionably excessive and unconstitutional.” Under California law, punitive damages must bear a “reasonable relationship” to the compensatory award.

Analyst David Adelman said he expects a trial judge to drop award to $100 million range, and that the decision of any single jury in a smoker case — no matter what the verdict — is unlikely to alter the industry’s overall legal risk profile.

In major U.S. market action:

Bonds rose. The 10-year Treasury note advanced about 1/2 point, or $5.00 for each $1,000 invested. The yield, which moves inversely to price, fell to 3.61%. The 30-year bond was up 1/8 to yield 4.71%.

The dollar was mixed. It traded at •124.23, up from •123.23 late Friday in New York, while the euro rose against the dollar to 98.22 U.S. cents from 97.92 U.S. cents in the previous session.

http://www.msnbc.com/news/158521.asp