Stocks sagged on Tuesday as investors cashed in on gains that accrued in recent weeks in part over optimism about progress in the war against terrorism.
Earnings news was mixed but analysts are betting that corporate profits will improve sometime in 2002.
On the war front, the U.S. and its allies appear to have gained the upper hand over forces fighting for the hard-line Taliban regime. But the U.S. is still hunting the elusive terrorist suspect Osama Bin Laden and members of his Al Qaeda terrorist network.
Standard & Poor's economic research unit MMS says Tuesday's profit taking was to be expected as stocks have recovered dramatically since their lowest levels after the September 11 terrorist attacks. The Nasdaq on Monday had risen 36% and the Dow had gained 21% from September lows.
Economic news on Tuesday had little impact on the market after reports that the U.S. trade deficit narrowed in September and that leading indicators increased slightly more than expected in October.
Among some of the companies posting results, office supply chain Staples Inc. (SPLS), said its third quarter profits rose 8%, thanks to various cost-cutting measures.
Target Corp. (TGT) posted third-quarter profits before special items that gained 5%, boosted by better results at its Target discount chain.
Merger news helped stoke up the leisure sector. Cruise company Royal Caribbean Cruises (RCL) is expected to merge with P&O Princess Cruises Plc.
But Intimate Brands Inc. (IBI), the name behind lingerie retailer Victoria's Secret, reported a third-quarter loss on lackluster sales.
Trading is expected to be light this week with markets shuttered on Thursday for the Thanksgiving holiday. They will reopen for a shortened session on Friday.
The Dow Jones industrial average lost 75.08 points, or 0.75%, to 9,901.38. The Nasdaq composite index was off 53.91 points, or 2.79%, to 1,880.51. The broader Standard & Poor's 500 index slipped 8.41 points, or 0.73%, to 1,142.65.
Treasuries were trading lower after a report that the U.S. trade deficit narrowed to $18.7 billion in September from $27.1 billion in August. The narrowing largely reflects reinsurance payments from September 11, however, which should be a one-off effect, Standard & Poor's MMS says. Imports plunged 11%, reflecting the reinsurance payments, while exports fell 8.5%. This narrowing in the deficit will suggest an upward revision to third quarter gross domestic product (GDP), but the market is likely to take this in stride.
In other economic news, U.S. leading indicators rose 0.3% in October after a 0.5% decline in September (unrevised). This is the first increase since July. Seven of the ten components were positive. The number is a little stronger than many had been anticipating and may take a little of the steam out of the short end of the Treasury curve.
MMS says the upside for the season certainly appears to be limited, given the deterioration in consumer fundamentals, which has been exacerbated by the September 11 attacks. But, as the October retail sales data clearly imply, the consumer has remained surprisingly resilient despite recent challenges.
European markets ended lower. In London, the Financial Times-Stock Exchange 100 index slipped 39.30 points, or 0.74%, to 5,298.70, in profit taking and on a report by the OECD that U.K. growth is likely to slow though mid-2002. In France, the CAC 40 lost 66.97 points, or 1.44%, to 4,593.52. In Germany, the DAX Index gave up 88.92 points, or 1.71%, to 5,096.18, on profit taking and on report German Factory Orders fell 4.1% in October.
In Asia, the markets finished with solid gains. The Nikkei added 78.85 points, or 0.74%, to 10,727.94 as momentum in bank shares built, adding support to gains in exporter stocks. In Hong Kong, the market gained 72.89 points, or 0.65%, to 11,360.26.