Stocks wiped away Friday's gains, and posted losses on Monday, as traders remain shadowed by concerns over increased terrorism risks. Further video tape evidence is linking Al Qaeda to the Madrid bombings, and traders fear the potential economic fallout in Europe.
Such terrorism concerns aren't misguided, analysts say. "The defeat of Spain's ruling party Sunday and the recall of Spanish troops from Iraq by the new Socialist government is a win for Al Qaeda, which is likely to embolden terrorists," said Ed Yardeni, chief investment strategist of Prudential Equity Group, in a note to investors.
The Dow Jones industrial average finished 137.19 points lower, or 1.36%, to 10,102.89. The broader Standard & Poor's 500-stock index was off by 16.14 points, or 1.46%, to 1,104.43. Semiconductor and pharmaceutical groups provided the largest negative impact to the S&P 500. The tech-heavy Nasdaq composite index shed its Friday gains, finishing down 45.53 points, or 2.35%, to 1,939.20.
Hotel and airline stocks also suffered. Weakness was attributed partly to renewed terrorism fears, and in part to Delta Air Lines' (DAL) prediction for a larger first quarter loss than the carrier originally expected, due to higher fuel costs. Traders are also worried "that renewed terrorism fears will creep into the psyche of travelers," says Art Hogan, market strategist at Jefferies & Co. in Boston, Mass.
Otherwise, traders await the week's headline economic event: the Federal Open Market Committe Meeting on Tuesday. Economists expect the FOMC to keep interest rates steady, with the federal funds rate remaining at 1%.
Edward McKelvey, senior economist at Goldman Sachs, says that traders should be patient -- a rate hike won't come until at least 2005, he says -- and they should listen closely to what the Fed statement says, "not just what it might mean." Don't expect any Fed moves, he says, until employment reports show consistent job recovery, and some signs of inflation appear.
Investors on Monday weighed a report on manufacturing conditions issued by the New York Fed. The Empire State index for March was far softer than expected, with the headline index at 25.33, vs. a median estimate of 38.0 and a prior reading of 42.05. The orders index came in at 23.52, vs. a prior 34.94, while the employment index now stands at 9.72, vs. 16.54. One piece of good news: the reading on shipments was 26.25, vs. 26.61.
"Everything remains positive, just not nearly as positive as was hoped," reports economic research firm, Informa.
On the other hand, February industrial production rose 0.7%, a slightly slower pace than January's gain of 0.8%. The capacity use rate rose 0.7% to 76.6% from 76.1% -- the highest rate since August, 2001. Capacity utilization in manufacturing rose to 75.2% from 74.6% last month, still at historic lows. "Overall, the report was positive and suggests continued strength for the economy and manufacturing in particular," says Informa.
Industrial production, excluding high tech, also rose 0.7% in February. Factory output gained 1.0%. Business equipment output rose 1.1%, motor vehicles and parts output rose 1.6%. The headline reading was actually held down by a 0.7% drop in utility output - the underlying performance was even better than plus-0.7%.
In corporate news, Delta Air Lines pulled airline stocks lower. In its form 10-K issued on Friday, the company predicted that its first-quarter loss would be be about $400 million, vs. its previous estimate of a $300 million to $350 million loss. Delta shares finished 12% lower.
Nortel Networks (NT) slipped 19% lower after the company announced that Douglas Beatty, CFO, and Michael Gollogly, controller, have been placed on a paid leave of absence pending completion of an independent review by the company's audit committee. S&P has kept its hold rating of Nortel, while JP Morgan has reportedly cut its rating to neutral from overweight.
General Electric (GE) says its GE Infrastructure unit will acquier tech security company, InVision Technologies (INVN), for $900 million or $50 per share. InVision is one of the largest suppliers of bomb-detecting, airport security machines. GE shares ended lower; InVision shares jumped 20%.
ImClone Systems (IMCL) has posted a fourth quarter loss of 35 cents per share, vs. a 54 cents loss on a 33% revenue rise. ImClone shares ended 2.6% lower.
In steel, Williams Industries (WMSI) was down 24% after posting a second quarter loss of 18 cents, vs. a 17-cents loss, as overall lower gross margins in its manufacturing segment, and other factors offset a 1.9% revenue rise.
In retail, Dollar General (DG) fell 4.1% after posting fourth quarter earnings of 33 cents, vs. 33 cents, as higher selling, general, and administrative costs offset a 12% sales rise. The discount retailer sees its fiscal 2005 net income (excluding items) rising between 10% and 14%, and has announced the resignation of CFO James Hagan.
In other economic news this week, traders will also hear reports on housing starts and building permits Tuesday, and Wednesday's release on the consumer price index. Thursday will bring the latest weekly jobless claims, leading indicators, and the Philadelphia Fed index.
Some of the major companies scheduled to report results this week include General Mills (GIS), Lehman Brothers (LEH), FedEx (FDX), Vivendi (V), Bear Stearns (BSC), 3Com (COMS), Morgan Stanley (MWD), Nike (NKE), and Williams-Sonoma (WSM)
Treasuries finished lower in price a volatile session, with the yield on the benchmark 10-year note rising to 3.80%. The market was buffetted by terrorism concerns, mixed data, and conflicting signals on continued buying of U.S. government debt by the Bank of Japan.
There is doubt that the FOMC will change rates, or its policy statement at tomorrow's meeting, following today's mixed economic data.
The U.S. dollar was mixed as the Federal Reserve is seen on hold for the rest of the year. The buck was trading at 1.802 vs. the British pound, as the sterling gains on speculation that the Bank of England will up interest rates to battle inflation. The dollar was at 1.226 vs. the euro.
European stock markets slid lower on Monday, amid lingering fears of terrorism as reports further link Al Qaeda to the train bombs in Madrid on Mar. 11. Voters in Sunday's Spanish elections turned out in droves, and pushed the existing Conservative government aside, returning the Socialist party to power. The new government has already said it plans to remove the 1,000-plus Spanish troops from Iraq by June 30, if the situation there doesn't improve.
London's Financial Times-Stock Exchange 100 index ended 36.3 points lower, or 0.81%, to 4,431.10. The U.K. government -- edgy following the attacks in Madrid -- has heightened security measures. Royal & Sun, and Schroders, Amvescap, Legal & General are among the financial related stocks heading lower.
Germany's DAX index dipped 104.62 points lower, or 2.67%, to 3,810.76, as research firm IFW cut its German growth forecast due to the strong euro, and weak demand. Traders are splitting their concerns between the potential economic fallout from the Madrid bombings and news that Germany's February semiconductor sales fell, according to S&P's MarketScope. Infineon Technologies was lower on that report. Bayer AG was also lower, on expectations that it will report a fourth quarter loss.
In Paris, the CAC 40 finished 87.94 points off, or 2.4%, to 3,573.84. AGF, Thomson and Cap Gemini were among the lower stocks.
Asian markets finished mixed on Monday. In Japan, the Nikkei 225 index gained 155.15 points points, or 1.39%, to 11,317.90. Retailer Ito-Yokado rose 6.3% after it said it would start opening supermarkets in China, reports S&P's MarketScope.
In Hong Kong, the Hang Seng index finished down 12.82 points, or 0.10%, to 12,919.41.