Stocks finished solidly lower Thursday, as gains in cyclical stocks could not offset losses in tech stocks amid continuing accounting worries. The blue-chip Dow average briefly crossed above the 10,000 mark in early afternoon, but selling of financials and other stocks dominated in the last hour of trading.
The Dow Jones industrial average lost 106.50 points, or 1.07%, to 9,834.68. Chip and networking stocks led the Nasdaq composite lower for the entire session, leaving it at its lowest level of the year with a loss of 59.33 points, or 3.34%, to 1,716.24. And the broader Standard & Poor's 500 index shed 17.03 points, or 1.55%, to 1,080.95.
In the latest accounting development, Cisco Systems (CSCO) lost ground on a New York Post report that evidence exists that 12 top Cisco executives may have held undisclosed stakes in a Silicon Valley partnership that benefited greatly from its ties to Cisco during the 1990s.
American International Group (AIG) fell on heavy volume after the insurer received subpoenas from the Securities and Exchange Commission as part of an investigation into PNC Financial Services Group's (PNC) accounting practices. AIG was an investor in PNC Financial partnerships.
AES Corp. (AES) shares ended lower, after gaining ground earlier after Standard & Poor's Ratings Group said Wednesday that the market's response to recent events has been "overblown." Last Friday, S&P put AES debt on Credit Watch with negative implications after Venezuela devalued its currency, which could hurt cash flow from the company's EDC unit. Moody's Investors Service says it is reviewing the energy company's long-term debt for a possible downgrade, citing concerns about the energy company's liquidity.
One bright spot was energy stocks, which rallied as crude oil prices rose to around $21 per barrel on the release of Department of Energy data that showed withdrawals of 3.1 million barrels of oil, instead of a buildup of 1.5 million barrels that was expected, which reflects OPEC's production cuts. S&P says that while the markets remain concerned over Russian output cooperation, it believes a deal will be worked out, holding oil prices steady through the second half of 2002.
Chip stocks were hurt amid news that Banc of America Securities reduced its profit forecasts for giant chipmaker Intel Corp. (INTC).
In earnings news Thursday, Nextel Communications Inc. (NXTL) reported a loss of $127 million in the fourth quarter, compared to a loss of $42 million a year ago, as costs rose. But the wireless carrier is delaying its full fourth quarter release until it determines the cost of a debt restructuring at the company's international unit. Ciena (CIEN) reported a first quarter loss per share of $0.17 as revenues declined 54% to $162.56 million. The networking gearmaker says it is uncertain about telecom carrier's near-term spending, and reduced its sales projections for the current quarter.
BellSouth (BLS) reduced its 2002 forecast, saying it sees 3%-5% 2002 normalized EPS growth (excluding foreign exchange) and 2%-4% total operating revenue growth, citing recent currency devaluations and deteriorating economic conditions in Argentina and Venezuela. The telecom company also says it will cut capital spending because of continued weakness in demand.
Treasuries were little changed in price following the release of the Philadelphia Fed index. The index improved to 16.0 in February from 14.7, indicating that manufacturing activity continues to improve in this region. New orders edged up to 13.7 from 12.6, but the employment index worsened to -14.7 from -9.3. Prices paid were -4.5 from -5.9. The six-month outlook dipped to 51.8 from 53.2.
Earlier, initial jobless claims for the week ended Feb. 16 rose 10,000 to 383,000, close to expectations. The December U.S. trade deficit was $25.3 billion, less than the S&P MMS projection of $27.1 billion. The index of leading indicators rose 0.6% for January, which is another positive sign of economic recovery.
European stocks ended higher. In London, the FTSE 100 index closed up 49.20 points, or 0.98%, to 5,073.30, boosted by the surge in Japan's stock market overnight and the U.S. market rally late yesterday. Traders were encouraged by the CBI report that manufacturing orders fell more slowly in February. But U.K. retail sales unexpectedly fell 0.3% in January.
In Germany, the DAX Index rose 70.49 points, or 1.47%, to 4,850.73. In France, the CAC 40 index finished with a gain of 48.23 points, or 1.14%, to 4,287.22 in a short-covering rebound, even though French consumer spending fell the first time in four months in January, as rising unemployment hurt demand for household goods such as furniture and appliances.
Asian markets surged higher. In Japan, the Nikkei jumped 461.29 points, or 4.69%, to 10,295.42 amid optimism over a U.S. economic recovery, and positive news locally about reform to the financial sector. Foreign investors reportedly bought technology-related shares heavily late in the Tokyo session. Bank shares also rose on news that the Secretary General of the ruling Liberal Democratic Party, Taku Yamasaki, is reportedly pushing Prime Minister Koizumi to approve more aggressive purchases of non-performing loans by the Resolution and Collection Corp. In Hong Kong, the Hang Seng gained 39.84 points, or 0.37%, to close at 10,788.90.